Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH RAILWAYS (NO. 2) BILL

[Queen's Consent, on behalf of the Crown, signified.]

Bill read the Third time and passed.

MANCHESTER CORPORATION BILL

Read the Third time and passed.

METROPOLITAN WATER BOARD BILL [Lords]

Read a Second time and committed.

PORTSMOUTH CORPORATION BILL [Lords]

Read a Second time and committed.

PETITION

Railways (Shrewsbury to London Service)

Sir J. Langford-Holt: Mr. Speaker, I desire to present a Petition signed by more than 3,000 of my constituents asking this House to order an urgent review of the train services between my constituency of Shrewsbury and London. They make this request because the train feeder services between Shrewsbury and Wolverhampton are both overcrowded and frequently miss the connection, because old carriages are used which travel at 70 miles an hour and have a 70 miles an hour speed limit, and for many other reasons, including one which will probably appeal to the House, and that is that the whole of the Mid-Wales area is cut off by the curtailment of these services.
I am no ostrich in these matters, but from my experience I can vouch for the—

Mr. Speaker: Order: . The hon. Member must state briefly the nature of his Petition.

Sir J. Langford-Holt: I can vouch for the truth of what is stated in this Petition, which ends with the usual form of words
Wherefore your petitioners pray that the British Railways Board and the Minister of Transport be instructed to carry out a complete and urgent review of the passenger and freight services.
And your Petitioners, as in duty bound, will ever pray.

To lie upon the Table.

Oral Answers to Questions — TECHNOLOGY

Motor Vehicles (Production)

Sir G. Nabarro: asked the Minister of Technology what estimate he has made of motor car output for the United Kingdom market, and for exports in 1967, comparing total production with 1966 and 1965, respectively; the rate of reduction in output during 1967 compared with the two preceding years; and what steps he is taking to prevent further decline in output of motor cars.

Mr. Bitten: asked the Minister of Technology if he will make a statement on the prospective level of activity in the United Kingdom Motor Industry during 1967.

The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Edmund Dell): No firm forecasts of car output or exports are possible, but I expect total production in 1967 to be slightly lower than in 1966 and 1965. It is likely that the total value of the industry's exports in 1967 will be higher than in 1965 and at least as high as the record 1966 figures. Production prospects are being closely watched and ways of bringing about improvements will continue to be explored by the National Advisory Council for the Motor Manufacturing Industry, of which my right hon. Friend is Chairman.

Sir G. Nabarro: Is the hon. Gentleman aware that in 1966, compared with 1964, the output of the car industry of Britain declined by 14·1 per cent., and that in 1967 so far this industry is having the worst year since the slump year of 1929? Why are the hon. Gentleman and his Ministerial colleagues so complacent about this disastrous position?

Mr. Dell: I would not say that this is by any means the worst year. If hon. Gentlemen opposite look back at the record of this industry under previous Governments, including their own, they will observe that in 1961 compared with 1959 production and exports fell by about one-third. The important thing here is that the exports of this industry are being maintained, and I hope that they will be increased.

Mr. Biffen: Is not the hon. Gentleman ware of the dangerously low levels of profitability in this industry, and will he therefore give an undertaking that the Government's prices and incomes policy will not be used in such a way as to inhibit manufacturers from charging prices which they believe to be commercially prudent?

Mr. Dell: I am aware of the industry's record of profitability. As a matter of fact, increases in prices have been permitted to the industry. Nevertheless, the fact must be faced that the industry's record in many markets requires to be improved and I hope that it will devote itself to that object.

Mr. Francis Noel-Baker: Will my hon. Friend say what the Government are doing to help the motor industry to improve its lamentable export performance? We have been pushed out of export markets one after another. Throughout the Commonwealth and the United States our performance compares extremely badly with other major European exporters, including Volkswagen and Renault.

Mr. Dell: I am aware of the position in relation to the United States. That certainly warrants investigation. Nevertheless, I would not say that the record of the industry is lamentable. It is good, but it nevertheless requires to be improved as compared with that of our foreign competitors. As for what the Government are doing to help, we have introduced the export rebate, which has been of considerable assistance.

Mr. David Price: Does not the Minister agree that the time has been reached when it is necessary to give some modest boost to the home sales of motor cars?

Mr. Dell: As the hon. Member knows, representations have been made to the

Government, which are under consideration.

Mr. J. H. Osborn: asked the Minister of Technology how many cars and vehicles were produced by the British motor industry in the first five months of 1967; how many of these have been exported; and how these figures differ from those for the identical period last year.

Mr. Dell: Production in May, 1967, is not yet known. In the first four months of 1967, 529,750 cars and 127,881 commercial vehicles were produced, of which 212,12 cars and 52,896 commercial vehicles were exported. These figures were, respectively, 13 per cent. 18 per cent. 5 per cent. and 9 per cent. less than in the corresponding period of 1966.

Mr. Osborn: Is not this a deplorable performance both for the manufacturers and the motor agents, who have to sell and who live by selling? Will the Government regard is as a matter of urgency to get some stimulation of the motor industry in this country? They are responsible for this. Will they do something about it?

Mr. Dell: The hon. Member should recognise that exports this year, by value, are being maintained, which is a good record in this situation, taking into account the difficulties which the motor industry is experiencing in various markets. Nevertheless, as I said earlier, it is clearly necessary that greater efforts should be devoted to exports. As the hon. Member knows, certain proposals have been put before British manufacturers in this regard and I hope that they will lead to some result.

Mr. Christopher Price: Can my hon. Friend give any sort of progress report on the "Little Neddy" for this industry, set up after so much pressure some time ago, which does not seem to have got down to doing anything yet?

Mr. Dell: We hope that the "Little Neddy" for this industry will come into action quite shortly.

World Weather Watch (Equipment)

Mr. Carter-Jones: asked the Minister of Technology if he will take immediate action to ensure that a fair quantity of British equipment is used by the World Weather Watch.

The Joint Parliamentary Secretary to the Ministry of Technology (Dr. Jeremy Bray): Contributing nations, and possibly the World Meteorological Organisation Secretariat, will invite tenders for equipment when requirements have been decided. Arrangements are being made to inform British manufacturers of the opportunities available.

Mr. Carter-Jones: I thank my hon. Friend for his reply, but since this is an activity in which we have the lead, both in knowledge and in theory, and in the use of instruments, will he give full support, through the Royal Air Force or the Meteorological Office or industry generally, in order that adequate research and development is carried out, to make sure that we keep the lead in this small but vital field?

Dr. Bray: Very substantial resources are being devoted to the development of the meterological service.

European Airbus

Mr. Rankin: asked the Minister of Technology if he will state the British content of the proposed European airbus.

The Minister of State, Ministry of Technology (Mr. John Stonehouse): It is expected that the United Kingdom would be responsible for 37½ per cent. of the airframe and 75 per cent. of the engine.

Mr. Rankin: Can my hon. Friend say whether or not it is the case that the French, who are going for the jumbo-jet, want commonality of engines and therefore are sticking out for the Pratt & Whitney engine in the airbus?

Mr. Stonehouse: There is another Question concerning the airbus, and I think that I should wait until that is reached before replying.

Mr. R. Carr: Is the Minister aware that the danger into which we are falling is that if we never have the lead on the airframe side we shall one day reach the stage when we no longer have the capacity to take the lead on the engine side?

Mr. Stonehouse: I appreciate this. No final decision has been made on who should take the lead on the airframe. The

Question was related to the division of work.

Mr. R. Carr: asked the Minister of Technology what decision has now been reached regarding the development and production of a European airbus; and whether he will make a statement.

Mr. Rankin: asked the Minister of Technology if he will make a statement on the progress he has made in the joint production with France and Germany of an airbus.

Mr. Stonehouse: At the meeting of Ministers in Paris on 9th May it was decided that the industrial consortium working on proposals for a European airbus should produce a design of the aircraft based on two Rolls Royce RB207 engines. A report on this work will be available in early July and Ministers plan to meet again towards the end of that month to consider it.

Mr. Carr: While that report is to be welcomed, as far as it goes, may I ask whether the Minister can give any idea when a firm decision might be expected so that work can begin and so that we can be sure of getting into the market in time and not behind the Americans? Can the hon. Gentleman give us any confidence in the firmness of the decision on the Rolls Royce engine, because he might have heard, as others have, the disturbing reports in Paris?

Mr. Stonehouse: There is no hold-up in the development of the project here. We shall receive the preliminary report of the project design towards the end of July and I hope that a firm decision will then be made to go ahead. The project study will be completed by next spring and then we can begin to develop the first aircraft. To answer the second part of the right hon. Gentleman's supplementary question, our line has always been that it would be better to have a European engine in a European airbus. We have been firm on that and I think that the French and German Ministers have now come round to our view.

Mr. Rankin: While wishing my hon. Friend well in this venture, may I ask him to assure us that in going ahead with the airbus nothing will be done to prejudice the production of an aircraft of


180-passenger capacity, which every operator in Europe now wants and urgently needs?

Mr. Stonehouse: We must consider our priorities here. We have an opportunity of participating in the development of an aircraft with the prospect of a firm European demand. Thus, the economic viability of the airbus promises to be good and we should, therefore, give this development our first priority.

Mr. Onslow: asked the Minister of Technology what consideration has been given to the possibility of a European airbus being powered by three rather than two engines.

Mr. Stonehouse: As the majority of European airlines have expressed a preference for a two-engined airbus, the present design study is being made on this configuration based on the Rolls Royce RB207.

Mr. Onslow: Is the hon. Gentleman aware that the airbus project is likely to be heading straight for commercial disaster and that the effects of this will be particularly serious for the air engine industry, in terms of its flexibility, if all Rolls Royce's resources are committed to straight competition with the JT9D—competition which Rolls Royce may well lose?

Mr. Stonehouse: I do not agree that the airbus project is heading for, or is facing, commercial disaster. If we can get it going on the conditions which we have laid down, we will be building it on a clear European airline demand, which will establish a market for it and help it to be a viable project.

Winfrith (Research Work)

Mr. Evelyn King: asked the Minister of Technology if he is satisfied that sufficient European funds are available to continue research work at Winfrith on the present scale; and if he will make a statement.

Dr. Bray: I assume that the hon. Member refers to the Dragon Project at Winfrith. Sufficient funds are available to support this project until the end of 1967. The signatories of the Dragon agreement are considering further extension up to the end of March, 1970. and

the United Kingdom Atomic Energy Authority has declared its willingness to participate in such an extension.

Scientists and Technologists (Recruitment from United States)

Sir W. Bromley-Davenport: asked the Minister of Technology what is the estimated annual cost of his proposal to send a team of experts to the United States of America with a view to persuading scientists, technologists and other professional persons who have gone to work there in preference to Great Britain to change their minds and return.

Mr. Stratton Mills: asked the Minister of Technology if he will publish the agreement with Management Selection Limited relating to Her Majesty's Government's scheme to encourage British citizens working in the United States of America to return to this country.

The Minister of Technology (Mr. Anthony Wedgwood Benn): I have agreed, subject to contract, to advance up to £75,000 over a period of three years against the starting costs of this scheme. I do not think it would be right to publish the details of contracts with commercial organisations.

Sir W. Bromley-Davenport: Is it not a waste of time and money to send experts all that way in order to try to get people to return? How can they be expected to change their minds when the reasons for which they left—high taxation and general frustration—are even worse, and are not likely to get any better?

Mr. Benn: The hon. and gallant Member is giving his answers to a very complex question. Those who have studied it think that there are many reasons why people go abroad—and many, we know, would like to come back. One of the objects of establishing this service with the M.S.L. is to see whether arrangements can be made to bring them back and also to encourage Americans to work here—which we believe could easily be arranged.

Mr. Stratton Mills: What can Management Selection Ltd. tell these people that they do not already know? Is not this a great waste of public money?

Mr. Benn: This is not a waste of public money, because there is a great deal of interest in this scheme in the United States. It was often discussed with me when I was there recently. Since it costs £15,000 to train a Ph.D. and the Government are putting only £75,000 into this scheme, the likelihood of a good return is very real, and if there is an international market in brains, as there is, it is right that this country should adopt a rather more vigorous attitude in trying to bring them back here to work.

Sir H. Legge-Bourke: In the light of the not inconsiderable success that the Atomic Energy Authority, amongst others, has had in getting people back from the United States, may we be given an assurance that the methods they have employed will be made fully available, so far as procedure is concerned, to other interests?

Mr. Benn: Certainly. The whole idea is to work with British industries which have experience, and to encourage those firms which have never thought of recruiting in the United States to begin to do so. I have little doubt that this movement will be the beginning of more extensive campaigning of this kind in the United States, and that it will also bring back useful information bearing on the reason why people leave this country.

Mr. Victor Yates: Can my right hon. Friend give us an assurance that there will be work for these people, especially those who, at the moment, want to go to America because there are no positions available here? Can my right hon. Friend give that assurance?

Mr. Benn: I can tell my hon. Friend that there will always be vacancies for good managers, scientists and engineers in this country.

Anglo-French Aircraft Projects

Mr. Hastings: asked the Minister of Technology whether he will make a statement on the progress of his talks with the French Government about the Anglo-French variable geometry aircraft and the Jaguar projects.

Mr. Fortescue: asked the Minister of Technology what is now the target unit cost of the Anglo-French variable geometary aircraft, excluding research and development costs.

Mr. Stonehouse: The agreement on the specification and industrial arrangements for the Anglo-French Variable Geometry aircraft, which includes agreement on costs, is under consideration by the two Governments.
As regards the Jaguar, we noted the satisfactory progress being made and agreed to make further approaches to the German Federal Republic about their participation in the project.

Mr. Hastings: Can the hon. Gentleman give the House any idea when a firm agreement will be reached on the A.F.V.G. and, in particular, can he say anything about German participation in this project—not simply the question of sales, but participation in manufacture as well?

Mr. Stonehouse: On the latter point, we hope very much that the Germans will consider participating, although the project is, I think, too far advanced for them to come into the initial development phase. On the first point, we hope that the final decision on this agreement can be made towards the end of this month.

Mr. Fortescue: Since the hon. Gentleman chose to answer my Question No. 39 with the original Question, would he please answer it in detail? He made no reference to it.

Mr. Stonehouse: The announcement about the target cost cannot be made until a final decision has been made about the agreement to which I referred.

Concord Project

Mr. Hastings: asked the Minister of Technology whether he will make a further statement about the progress of the Concord project.

Mr. Stonehouse: The structure of the first prototype is now virtually complete, and installation of the various internal systems has begun. The second prototype is also in an advanced state of construction. Structural and functional tests of various large specially-constructed airframe components are now well under way. Eleven Olympus 593 engines have been delivered and over 1,200 hours of test-bed running has been logged in Britain and France.

Mr. Hastings: While agreeing with the hon. Gentleman that this progress is in many ways most satisfactory, may I ask whether he can tell the House something about the financing of production in future, as this is something in which we are all interested?

Mr. Stonehouse: There is no hold-up in the development of the production phase, and advance materials and equipment have been bought for that.

Mr. Lubbock: What proposals has the hon. Gentleman made to help display the Concord mock-up to British citizens on a permanent site in central London?

Mr. Stonehouse: That is another question, but we hope that the firm has been able to find a site to display this extraordinarily good mock-up, which my right hon. Friend and I saw in Paris last weekend.

Mr. Ellis: Is my hon. Friend aware that the firms engaged in the financing of the production models are expecting a decision by the end of June or perhaps in July? Can he assure us that the finance arrangements will be made by then?

Mr. Stonehouse: The Ministry is, of course, in close contact with the firms about this, and I have no reason to think that any essential decisions will be delayed.

Mr. R. Carr: But since it appears likely that a decision will be needed before the hon. Gentleman next answers Questions, could he undertake to make a statement to the House when the decision has been made?

Mr. Stonehouse: There is no need for a statement, because no earth-shattering decision will be made. We are phasing into the development of the production phase and, as far as I know, there is no hold-up to this.

Mr. McMaster: asked the Minister of Technology at what date it will be possible for airlines to be given full details of performance and costs of Concord in order that firm orders can be placed for this aircraft.

Mr. Stonehouse: The manufacturers aim to start converting existing options into orders based on firm specifications

and prices during the autumn of 1968, about six months after first flight.

Mr. McMaster: Does not the hon. Gentleman realise the importance of placing firm orders as quickly as possible; and will he do his best to expedite this?

Mr. Stonehouse: I do not think that it could be expected that the options could be converted until towards the end of next year.

Mr. Peter Mills: asked the Minister of Technology what monthly rate of production is planned for the Concord in Great Britain and France, respectively, once production gets under way

Mr. Stonehouse: Current plans provide for a rate of three a month from the British and French assembly lines taken together.

Mr. Mills: That is all very well, but when does the hon. Gentleman expect metal to be cut for the production model? Is he aware that if we are to maintain our lead, these plans must be advanced as quickly as possible?

Mr. Stonehouse: We will begin to cut metal for production aircraft as soon as the development phase, which is going ahead very well, is further advanced.

Computers

Mr. Gwilym Roberts: asked the Minister of Technology how many computers were in use in Great Britain in 1958, 1962 and 1966; and how many he estimates will be in use by 1970.

Dr. Bray: The numbes of computers of all kinds, other than computers used for defence purposes, in use in the United Kingdom at the end of 1958, 1962 and 1966 were approximately 70,420 and 2,200 respectively. I estimate that by the beginning of 1970 the corresponding figure will be more than 5,000.

Mr. Roberts: Would my hon. Friend agree that there are two problems here—getting firms to acquire the computers and then teaching them what to do with them? What steps is his Ministry considering in terms of further education of firms in computer feasibility?

Dr. Bray: I agree with my hon. Friend that there are two problems, although I


would put the second first, and we are discussing with various kinds of computer users how to develop further the work of the National Computing Centre and in other ways to encourage the efficient use of computers.

Mr. David Price: Is the hon. Gentleman aware that the figure which he quoted of the Government's estimate of 5,000 computers in use by 1970 is a considerable increase on the figure quoted in the Department of Education and Science publication on our manpower needs and the educational needs of computer technology? Does it follow—this also followed from the supplementary question of the hon. Member for Bedfordshire, South (Mr. Gwilym Roberts)—that the Government will increase their aims in computer education?

Dr. Bray: The estimate to which the hon. Gentleman referred was made some time ago. The work on computer education is being examined by a working party set up by, among others, the National Computing Centre. We certainly have the matter under close review.

Oceanography and Underwater Technology

Mr. Gwilym Roberts: asked the Minister of Technology what steps he is taking to give greater support to oceanography and underwater technology; and what help he is giving to the Imperial College project "Kraken" designed to enable oceanographic research to be carried out in a permanent, moveable, underwater laboratory.

Mr. Benn: I am preparing technological proposals to discuss with those of my right hon. Friends with responsibilities in this field. The Imperial College project "Kraken" has been discussed with officials of my Ministry. The provision of facilities for carrying out oceanographic research is a matter for the university concerned which is supported by the University Grants Committee or appropriate Research Council.

Mr. Roberts: As two-thirds of the surface of this globe is water, can my right hon. Friend assure us that sufficient importance will be given to this matter? What additional steps are envisaged, following the atomic energy conference about the sea and the sea bed?

Mr. Benn: Following the conference at Harwell to which my hon. Friend referred, further work is going on on the proposals which emerged and I referred to this in my Answer. I entirely agree that a good deal of work needs to be done in this area, and we, as a Department, are very interested in it.

Mr. Hooley: Are any discussions going on with other European countries in this sector of technology?

Mr. Benn: As my hon. Friend knows, there is a good deal of interest in this in Europe. When I was in the United States, I discussed the work being done there in this field. It is almost inevitable that most advanced countries will be concerned with this and we shall have to see what scope there is for collaboration.

Surface Ships (Nuclear Reactor)

Mr. Wall: asked the Minister of Technology if he will make a statement on progress towards the development of an economic nuclear reactor for surface ships.

Mr. Benn: The economic opportunity for the application of nuclear power at sea is more likely to arise from ship requirements for greater power and more intensive utilisation than from a change in reactor design. However, the United Kingdom Atomic Energy Authority is keeping under review improvements in reactor and nuclear fuel technology in the special context of a ship application.

Mr. Wall: Is the right hon. Gentleman aware that I have been asking this type of Question for 10 years? Is it not too much to expect the first British nuclear prototype ship to be fully economic? Is there any question of building a naval tanker or supply ship to expedite British developments in this direction?

Mr. Benn: Not only the hon. Gentleman but a number of other people have been interested in this for 10 years. The reason that no decision to go ahead has yet been taken is that there is no reason at the moment to believe that a ship of this kind not only would, in the first instance, be economic but also would prove economic in the production phase.


The reason is that most merchant ships spend most of their time in port. When there are very large container ships with a very rapid turn-round and a requirement for greater power, there might be progress. I am as keen as the hon. Gentleman, but perhaps we should wait a little longer.

Mr. Wingfield Digby: How many scientists at the A.E.A. are working on this? Has not the problem in the past been that the number was insufficient?

Mr. Benn: The hon. Gentleman will find from my Answer that it is the economics of the use of a reactor rather than the technology of the reactor itself which is the barrier to progress, but that is a separate question, and I will write to the hon. Gentleman about it.

Sir H. Legge-Bourke: Is the right hon. Gentleman aware that, although Sir William Penney considers that it is not yet necessary, some of us feel that the Padmore Committee should be reconvened in the light of the more recent developments in this sphere?

Mr. Benn: I should certainly be happy to consider that, so long as I felt that I carried the hon. Gentleman with me in my general approach, namely, that there is no point in doing something which we know is technologically possible if it has not a long-term economic benefit for this country. That is the key to the whole matter.

Airframe Company Mergers (Negotiations)

Mr. R. Carr: asked the Minister of Technology what progress he is making in his negotiations for the merger of the main airframe companies with substantial Government participation; and whether he will make a statement.

Mr. Benn: These are complex negotiations involving as a first stage the valuation of the companies concerned. This is necessarily a lengthy business not least because the companies are not quoted on the Stock Exchange. I cannot yet say when the negotiations will be completed.

Mr. Carr: Yes, but it is now more than 18 months since the publication of the Plowden Committee's Report and is the right hon. Gentleman not aware that this

continuing lack of certainty about the future structure and ownership of the industry must be holding up planning and commitments of future projects and must also be holding up the development and stability of management, on which increased efficiency primarily depends?

Mr. Benn: We want to get ahead with this, but it is a complicated business, as no one knows better that the right hon. Member for Mitcham (Mr. R. Carr). It is better to get this right than to hurry and then find oneself in difficulties.

Sir A. V. Harvey: Would the right hon. Gentleman take into account that this long delay is having a serious effect on the trained personnel in this industry, many of whom, as he said earlier, are leaving the country, and that an early decision would give them security of tenure in their professions?

Mr. Benn: I certainly have this point in mind, although I think that the trained personnel in the industry are more likely to reach their decision to stay or leave according to the number of projects on which they are able to work. Although I recognise the need for a rapid conclusion to this matter, I hope that people will not over-estimate the effects of the uncertainty that is inevitably associated with long and difficult negotiations.

Trident 3B Aircraft

Mr. McMaster: asked the Minister of Technology what studies he has made of the potential market for the Trident 3B; what its development cost will be; and how its operating costs will compare with other equivalent British and United States aircraft.

Mr. Stonehouse: The potential market for the Trident 3B was studied by the Department last year when the aircraft was first offered to British European Airways and has recently been reappraised. The launching costs of the aircraft have been estimated by Hawker Siddeley to be some £17 million and its operating costs per seat-mile would compare favourably with other equivalent aircraft.

Mr. McMaster: I thank the hon. Gentleman for that reply. Are the Government prepared to support this project or else to support the BAC 211 project


so that this country does not fall behind in developing a suitable alternative to the airbus and to ensure that we are able to benefit from this type of production?

Mr. Stonehouse: There are several aircraft projects now under consideration to fill what is sometimes referred to as the "B.E.A. interim requirement"—although that is, perhaps, a misleading term. The decision about the airbus is, in fact, a separate decision.

Aircraft Engines (Noise)

Mr. Peter Mills: asked the Minister of Technology what Government financial support is being given towards the development of aircraft engines with reduced noise characteristics; and what arrangements he has introduced for liaison on this subject with other countries since the international conference on the reduction of noise and disturbance caused by civil aircraft.

Mr. Stonehouse: The Government are supporting the initial development of a large subsonic civil aero-engine, the RB207, and are likely also to support a smaller engine, the RB203 or Trent. Both engines will make substantially less noise than existing engines. At the same time, the Department continues to sponsor, in industry and in its own establishments, research aimed at the reduction of aero-engine noise. Collaboration with France and the United States on the question of aircraft noise certification continues.

Mr. Mills: Does not the hon. Gentleman agree that this problem of engine noise must be solved if we are to have larger aircraft in future? Does he agree that we must give the highest priority to this matter? Will he also bear in mind that this problem of noise and the disturbance it causes has now even reached the south-west of England?

Mr. Stonehouse: I very much agree with the hon. Gentleman that this is a serious problem. I assure him that it is one to which the Government give very top priority.

Mr. Lubbock: Can the hon. Gentleman say what the prospects are for the RB207 in this and the next financial year and what is the maximum rate at which

Rolls Royce is capable of developing this engine? Can he also say what prospects there are of selling this engine instead of the Lockheed 10–11?

Mr. Stonehouse: Contracts worth £1·3 million have been placed and development is going ahead as quickly as Rolls Royce can handle it. I am not yet in a position to say what the prospects are of selling the RB207 in the United States.

VC10 Aircraft

Mr Fortescue: asked the Minister of Technology whether he has now completed his consideration of the proposal for a modification of the VC10 aircraft for tanker purposes.

Mr. Stonehouse: The study of the modifications proposed by the British Aircraft Corporation has been completed and is being taken into account in our consideration of the future needs of the R.A.F.

Mr. Fortescue: Since we are rapidly approaching the time, if we have not yet already reached it, when the V-bombers, being used as tankers, will have themselves to be refuelled while in the process of refuelling other 'planes, would not the hon. Gentleman agree that there is a certain amount of urgency about this project?

Mr. Stonehouse: It is for my right hon. Friend the Secretary of State for Defence to decide what are the needs of the R.A.F. in this connection.

Incentive Contracts

Mr. Onslow: asked the Minister of Technology whether his Department has yet completed the study of the problems related to incentive contracts; and whether he will make a statement.

Mr. Benn: We are still at work on this problem. Wherever possible it is my Department's policy to negotiate incentive contracts for both production and research and development work.

Mr. Onslow: With particular reference to the aircraft industry, is the Minister still refusing to take into account the profit formula and the calculation of overheads in this matter?

Mr. Benn: The question of the profit formula is, as the hon. Gentleman probably knows, a subject for separate discussion and does not relate specifically to the point in question.

Machine Tools

Mr. Woodnutt: asked the Minister of Technology if he will state the date on which Royal Ordnance factories and other Service departments were instructed to buy British machine tools in preference to foreign, in cases where British machines were suitable.

Dr. Bray: No such instruction has been needed. It has always been the policy of the Government that the Royal Ordnance factories and other Service Departments should buy British machine tools when they are suitable and available when required and at a competitive price. About a year ago purchasing departments started to consult the Ministry of Technology before placing any substantial orders for imported machine tools.

Mr. Woodnutt: I thank the hon. Gentleman for confirming what I already knew. Would he say why he completely misinformed me in the House on 11th April by telling me that such instructions had been given? [HON. MEMBERS: "Oh."] Would he agree that there is a balance of payments benefit to be gained, in cases where we are beaten on a contract by a very small amount, by introducing something like the Buy American Act to persuade people to buy British when British machine tools are available?

Dr. Bray: I do not believe that I in any way misled the hon. Gentleman, as he will find out if he reads the OFFICIAL REPORT of what I said. As to the question of any preference being given, this is a very wide question affecting Government procurement in general and does not arise on this Question.

A.E.I. Factory, Bristol

Mr. Ellis: asked the Minister of Technology if he will give details of the representations which he has made in his official capacity to Associated Electrical Industries following the announcement of its decision to close its factory at Barton Hill, Bristol.

Mr. Benn: I have made it clear to the company's senior management that, quite apart from their decision to close the factory, there should have been prior consultations with the trade unions concerned in order to give the opportunity of commenting on the proposed closure and, in any case, they should have been given ample notice of the actual announcement.

Mr. Ellis: Is my right hon. Friend aware that the firm, besides not negotiating with the people engaged by it—who have given loyal service over many years—has so far refused to allow them to find other jobs so that they can take advantage of redundancy payment, but expects them to work right to the last minute and then go out and find work? As I say, these people have given many years of loyal service. This is not good industrial relations. Will my right hon. Friend make representations to this firm?

Mr. Benn: I am very well aware of this position, because the firm is in my constituency. I have discussed the case with the people who came up to represent their view. I do not know that there is a great deal I can do to help but, as I said in my original Answer, I have been in touch with the firm on the genera] question.

Culham Laboratory (Research)

Sir H. Legge-Bourke: asked the Minister of Technology what subjects of research in addition to nuclear fusion he intends should be continued at the Culham Laboratory.

Mr. Benn: This is an important aspect of the proposals for the future of Culham, which the Government are now considering. I am not yet ready to make a statement.

Sir H. Legge-Bourke: I appreciate that this matter requires a very great deal of consideration, but will the right hon. Gentleman bear in mind the future of plasma physics research? In particular, the high energy pulse techniques at this laboratory are of extreme importance and of some considerable commercial value, and it would be a tragedy for us to lose those resources.

Mr. Benn: I am very well aware of this. It is universally recognised that


Culham is a centre of international excellence, but I am not yet ready to speak definitely about the future. I would be grateful if the hon. Gentleman would allow me a little more time to consider the subject.

Mr. David Price: In his consideration, will the right hon. Gentleman keep in mind that, whereas it may not be right for the A.E.A. to continue to give the same support to plasma physics as hitherto, the right answer might be to turn Culham into some form of national plasma institute, possibly associated with a university?

Mr. Benn: I will consider that suggestion.

Desalination

Mr. Hector Hughes: asked the Minister of Technology if he will make a statement on the progress of desalination during the last 12 months with a view to converting sea salt water into fresh pure drinking water for human and animal use.

Mr. Benn: Weir Westgarth has recently been successful with a tender for a large distillation plant of advanced design in Qatar. Developments in electrodialysis, to make it the most economical commercially available process for desalting brackish water, are now being tested in a pilot plant. Britain can now offer these plants with a guaranteed performance up to 6 million gallons per day (U.S.). The A.E.A. and industry are also working on the freeze process. Other possibilities being studied include package plants and ship-borne desalination plants to cater especially for the needs of island communities.

Mr. Hughes: Whilst thanking my right hon. Friend for that constructive Answer, may I ask whether he agrees that Britain, as an island nation, should, especially in time of incalculable war, take account of all the possible resources in the technology of his Department?

Mr. Benn: I very much agree with my hon. and learned Friend. Indeed, at the Water for Peace Conference I attended recently in Washington, the British stand aroused a great deal of interest, and British technical leadership in this field is widely recognised.

Mr. Mawby: Has the Minister considered what a great advantage such a process would be to many seaside areas which suffer shortage of water during the summer? A modern desalination process could assist them considerably in creating an adequate water supply.

Mr. Benn: There are two pilot plants now under construction or in use. There is the sea water test facility at Troon, in Ayrshire, and the 50,000 gallon-a-day plant which has been built in association with William Boby in Essex. We are advancing our technology very rapidly in those areas, and I dare say that the point made by the hon. Gentleman will indicate future commercial use, although it may be a bit early to say.

Advanced Gas-Cooled Reactors

Mr. Ridley: asked the Minister of Technology how many orders have been placed from abroad for advanced gas-cooled reactors.

Mr. Leadbitter: asked the Minister of Technology what progress has been made during the last two years in promoting exports of advanced gas-cooled reactors and associated nuclear power station equipment.

Dr. Bray: The British Nuclear Export Executive has been active in some 20 countries in pursuing possible sales of advanced gas-cooled reactors. While no firm orders from overseas have yet been received, the advanced gas-cooled reactor is already being considered in one major tender competition and there are a number of prospects in the offing.

Mr. Ridley: Does not the Joint Parliamentary Secretary think it significant that a large number of boiling-water reactors have been sold? Does he not feel that it might be appropriate to have an inquiry into whether the monolithic structure of the United Kingdom A.E.A. should not now be broken up in order to provide more and different outlets, and different sorts of design and experience?

Dr. Bray: The advanced gas-cooled reactor offers many advantages in other countries which are now developing an electricity distribution system similar to that in Britain, and we are quite confident of the competitive position of the A.E.A.

PRIME MINISTER (VISIT TO CANADA AND U.S.A.)

Sir Knox Cunningham: asked the Prime Minister if he will make a statement about his visit to the President of the United States of America.

Mr. Marten: asked the Prime Minister if he will make a statement about his visit to North America.

Mr. Blaker: asked the Prime Minister if he will make a statement about his recent discussions in Washington.

Mr. Wall: asked the Prime Minister if he will make a statement on his visit to Canada and the United States of America.

Mr. Spriggs: asked the Prime Minister whether he discussed the war in Vietnam with President Johnson during his recent visit to the United States; and if he will make a statement.

The Prime Minister (Mr. Harold Wilson): Mr. Speaker, with permission, I will answer all these Questions at the end of Question Time.

RHODESIA

Sir G. Nabarro: asked the Prime Minister whether he will now make a further statement on Rhodesia.

The Prime Minister: I have at present nothing to add to the previous reports which have been given to the House on this subject.

Sir G. Nabarro: Can the Prime Minister say whether any fresh approach has been made by Mr. Ian Smith or by Sir Humphrey Gibbs since the House rose for the Whitsuntide Recess; and, if not, whether numerous Press reports to that effect are false?

The Prime Minister: We have had no new approach whatsoever from Mr. Smith or any of his colleagues. Exchanges with the Governor are, of course, always confidential, but we have had no reason whatsoever to think that Mr. Smith is prepared to enter into discus-cussions that could be meaningful.

Mr. Hastings: Can the Prime Minister tell the House what the Governor's views

are at the moment as to the advisability of continuing negotiations?

The Prime Minister: As I say, it has always been our practice not to communicate the confidential exchanges between ourselves and the Governor, but nothing I have seen from the Governor or anywhere else suggests that Mr. Smith or his colleagues are prepared to enter into meaningful discussions, or, if they did, that they would have any intention of carrying out any agreement reached, or that they would be allowed to do so.

Mr. Heath: The Prime Minister has gone so far as to say that his own judgment of what the Governor has said does not suggest that any contacts would be fruitful. Having gone so far, ought not the right hon. Gentleman to be quite clear as to whether, in the Governor's judgment, there ought not to be the beginning of talks?

The Prime Minister: We would be prepared to have talks at any time if the necessary conditions were fulfilled. Last year, as the right hon. Gentleman will recall, it was we who took the initiative on every occasion. Many months were wasted when we did so and, in the end, the agreement reached on H.M.S. "Tiger" was turned down by the extremist members. There is no reason to think that Mr. Smith can have any more freedom on this occasion.

COMMONWEALTH AND FOREIGN OFFICES

Mr. Francis Noel-Baker: asked the Prime Minister if he will now amalgamate the Commonwealth and Foreign Offices and appoint a single Secretary of State for External Affairs.

The Prime Minister: No, Sir.

Mr. Noel-Baker: As no other country, including any Commonwealth country, now has more than one external affairs department, and in view of the inevitable duplication and occasional confusion that the present arrangement entails, does not my right hon. Friend feel that the time has come to reconsider this rather anachronistic set-up?

The Prime Minister: No, Sir. When this matter was considered in 1964, as a


result of the Plowden Committee's Report, it was felt that any amalgamation could be misinterpreted as implying a loss of interest in the Commonwealth partnership. I believe that this reason still applies today as an argument against amalgamation. Where necessary, responsibilities have been transferred from one Department to another.

Mr. Blaker: Would not the Prime Minister agree that the Plowden Report is not inconsistent with the proposal made in this Question? Has he consulted Commonwealth Governments about it? Is he not aware that, if he did so, he would find a large degree of support for the proposal?

The Prime Minister: The Plowden Report is not inconsistent. It recommended unification of the overseas service, and this has now been carried through. As to the views of Commonwealth countries, I do not think that there would be any-anything like the unanimity which the hon. Gentleman suggests. Very many Commonwealth countries attach the greatest importance to the fact that there is a Department specifically dealing with Britain's relations with the Commonwealth.

INDIA (VISIT BY PRIME MINISTER)

Mr. Francis Noel-Baker: asked the Prime Minister when he will visit India.

The Prime Minister: I have at present no information to give the House.

Mr. Noel-Baker: When the present tension in the Middle East subsides, will my right hon. Friend consider an early visit to India where, as he knows, in the past there have been doubts and apprehensions about the attitude of Her Majesty's Government and, indeed, of my right hon. Friend towards relations between the United Kingdom and the Indian Government?

The Prime Minister: I am not aware what those doubts are. I have had, of course, fruitful discussions with the Prime Minister of India on her visit to this country, which was long after the kind of events my hon. Friend has in mind. I should very much like to go, but it is

extremely difficult at this time to forecast the time and date when that will be possible.

NEWSPAPER INDUSTRY

Mr. Boston: asked the Prime Minister what recent discussions he has had with the newspaper industry concerning its current difficulties.

The Prime Minister: None, Sir.

Mr. Boston: Does not my right hon. Friend agree that the impending closure of the Sunday Citizen comes disturbingly quickly after the pessimistic forecasts in the Economist Intelligence Unit's recent report and any further closures will impair Press freedom? Does he not think that if the industry itself is reluctant to approach the Government it is now time that the Government themselves took the initiative in trying to seek a solution to this problem?

The Prime Minister: I agree that this decision is an extremely disappointing one. When the House last debated this matter, the Government took the view that the industry, which had asserted its ability to deal with the situation, must look after it. I agree that the industry itself should be considering the situation which has arisen in the case of this newspaper and which might arise in the case of other newspapers if this trend were to continue.

Mr. Hogg: Are we to understand from the original Answer that the account given by Lord Thomson of a recent discussion with the Prime Minister on this subject was not accurate?

The Prime Minister: Lord Thomson himself described his account as a joke. A number of hon. Members, I believe, heard it given at a gathering downstairs. What I said to Lord Thomson, and I thought it right to say so, was to ask whether there was anything he could do to secure the viability of the paper. He has great expertise in the matter of commercial management of newspapers, securing advertising revenue and the rest. I never suggested, as some thought afterwards, that I was reflecting on the editorial quality or journalistic content of the paper.

Mr. Frank Allaun: Will my right hon. Friend do something even at this twelfth hour to help the Sunday Citizen, as he promised to do not long ago?

An Hon. Member: Nationalise it.

The Prime Minister: The problem of the Sunday Citizen, as we know, is of very long standing and has recently been intensified. It is not disconnected, I believe, despite its high quality, with the regrettably low circulation it has managed to achieve.

Sir G. Nabarro: High quality?

The Prime Minister: I said "high quality". Obviously the hon. Member does not read it. I do not believe the House as a whole would feel it would be right to intervene directly on behalf of an individual newspaper with a subsidy—most of the schemes proposed are for newsprint subsidies or pooling arrangements for advertising revenue. This must be a matter for the industry as a whole.

Mr. Pavitt: Has my right hon. Friend given consideration to the whole question of the placing by Departments of Government advertising?

The Prime Minister: Yes, this has been very carefully considered. In general the practice has been to do it on what might be called commercial grounds. In relation to advertisements which are designed to secure particular results—such as recruiting—a close examination—I have seen the figures—has shown that a more proportionate distribution would have made very little difference to the revenue position of the Sunday Citizen.

Mr. Onslow: Do more of the right hon. Gentleman's hon. Friends subscribe to Tribune than to the Sunday Citizen?

KING FAISAL OF SAUDI ARABIA (TALKS)

Sir J. Langford-Holt: asked the Prime Minister whether he will make a statement on his talks with King Faisal of Saudi Arabia.

The Prime Minister: As the Answer is rather long, I will, with permission, circulate it in the OFFICIAL REPORT.

Sir J. Langford-Holt: Can the Prime Minister say whether these talks cover the question of the international status of the Gulf of Aqaba and expressions of opinion made on both sides?

The Prime Minister: No, Sir. Two of the three talks had taken place before the crisis arose in the Middle East. When it arose we indicated to His Majesty our views on the position. He said categorically, and he said publicly later in the day, that if it was a question of a confrontation of the Arab States and Israel, whatever his difference with other Arab States, he would be solidly ranged with them against Israel. In these circumstances, the Gulf of Aqaba question could not be pursued further.

Mr. Emrys Hughes: Can my right hon. Friend tell us if King Faisal came here to get more armaments, and did he explain what he wanted the armaments for?

The Prime Minister: No, Sir. He did not come here to get more armaments. He came here for a general discussion on questions of interest to both of us in the Middle East.

Mr. Heath: Can the Prime Minister say whether the talks covered the problem of Buraimi and whether proposals for resolving the difficulties there were made? Secondly, can he say whether they covered the problem of Aden and whether this influenced the Government's policy? When may we have a statement to remove uncertainty about Aden?

The Prime Minister: The talks certainly covered the question of South Arabia and Aden in the present situation and of prospects after independence. It is, I think, no secret that the Saudi-Arabian Government and we do not see eye to eye on all aspects of this matter, but there was no difference at all about the question of independence being given. As to a statement, I will certainly consult my right hon. Friend to see whether one can be made.

Mr. Shinwell: If this gentleman did not come here in order to obtain arms for his country, having regard to the situation he must have envisaged, in heaven's name why did he come here? What was the reason for the lavish hospitality? What


did Her Majesty's Government get in return for it?

The Prime Minister: My right hon. Friend will know that a very large number of distinguished Heads of Government and Heads of State come—

Mr. Shinwell: You do not call him distinguished, do you?

The Prime Minister: My right hon. Friend will know that a large number of distinguished Heads of Government and Heads of State come here not to buy arms. They come for discussions on questions of mutual interest. This was the position here. This was a State visit which we felt was well worth while. The present situation in the Middle East was not foreseen, and I do not think that the present situation in the Middle East in any way detracts from the value of the talks.

(Following is the answer):
In addition to calling on His Majesty at Buckingham Palace, I had formal talks with him on two ocasions. I was assisted by my right hon. Friends the Secretary of State for Foreign Affairs and the Secretary of State for Defence, and the Minister of State at the Foreign Office, my right hon. Friend the Member for Dundee, East (Mr. George Thomson), and my hon. Friend the Minister of State at the Ministry of Technology. The talks consisted of exchanges of views on subjects of common interest, including the present crises in the Middle East and South Arabia. King Faisal's views do not, of course, always coincide with those of Her Majesty's Government, but the talks were notable for their frankness and cordiality, I am persuaded that they helped each side to a clearer understanding of the other's point of view and were therefore most valuable.

SPACE PROGRAMME

Mr. Neave: asked the Prime Minister what steps he has taken to coordinate Great Britain's national space programme; and what criteria he uses in deciding the priorities of the requirements of the various Departments concerned in space activities.

The Prime Minister: Co-ordination of our space programme and the assessment of priorities between them is achieved by the normal methods of inter-departmental consultation, Sir.

Mr. Neave: Can the Prime Minister say whether the Zuckerman Committee is considering this point as reported and,

if so, would it be advisable for the Committee to make its recommendations known before the European Space Conference in July?

The Prime Minister: It is a fact that this matter is being looked at by the Central Advisory Committee. There are very many difficulties. I have explained on many occasions why the previous Government and we believe that there should be this division of responsibility. If we could get more coordination we would be glad to do something about it.

Mr. Gresham Cooke: Is the right hon. Gentleman aware that even in the British military space communications system, Skynet, we have had to place contracts for two satellites with the Philco Corporation of America for them to launch in America? Is it not time for the British aerospace industry to be brought forward in these systems?

The Prime Minister: Yes, I very much share the views of the hon. Member on this matter. It is part of a wider problem. We are trying to build up our own industry on a competitive basis with the Americans. In this case the projects of our own industry would not have been competitive.

EUROPEAN ECONOMIC COMMUNITY

Mr. Raphael Tuck: asked the Prime Minister if he will make a statement on the present situation regarding Great Britain's entry into the Common Market.

The Prime Minister: I have nothing to add to the Answer given by my right hon. Friend the Foreign Secretary on 1st June to a Question by my hon. Friend the Member for Croydon, South (Mr. Winnick).—[Vol. 747, c. 253.]

Mr. Raphael Tuck: Would my right hon. Friend consider conferring the Order of the Garter upon President de Gaulle for having saved Britain from herself?

The Prime Minister: As my hon. Friend will know, recommendations to Her Majesty about the Order of the Garter do not lie in the hands of the Prime Minister.

Mr. Edward M. Taylor: Does not the Prime Minister regard it as regrettable, if not intolerable, that we should have made application without giving any indication to the people of Scotland of how membership of the Common Market would affect them? Will he direct the Secretary of State for Scotland to issue a White Paper giving the information?

The Prime Minister: My right hon. Friend the Secretary of State was involved in the issuance of the White Paper jointly laid before the House by himself and my right hon. Friend the Minister of Agriculture, Fisheries and Food. In the three days' debate all relevant considerations were capable of being debated and the House made its decision.

Mr. English: In his forthcoming discussions with the President of France on the Common Market, will my right hon. Friend raise the issue of what would happen if we ceded a portion of our sovereignty to an international institution whose composition may be determined in part by Governments who have come into power unlawfully according to their own law, such as the President's?

The Prime Minister: No, I was not proposing to raise such questions with the President of France. On the question of sovereignty and the legal and juridical implications in relation to the proposal, fairly lengthy statements have been made to the House. No doubt my hon. Friend will have seen the White Paper recently laid by Her Majesty's Government.

Mr. Heath: If negotiations begin in Brussels, which Minister taking part in them will report directly to the House of Commons?

The Prime Minister: Reports to the House of Commons will be made by my right hon. Friend the Foreign Secretary.

Mr. Heath: Will it not be very unsatisfactory that there will be no Minister taking part giving a personal report to the House of Commons? The Foreign Secretary, under the announcement made by the Prime Minister, will not be handling the day-to-day negotiations and, therefore, will be giving an indirect report to the House of Commons. Ought

not the Minister to be in the House of Commons instead of in the House of Lords?

The Prime Minister: I must say that I like that coming from the Chief Whip of a Government whose Foreign Secretary was in the House of Lords for three years. The answer to this question is that, having considered very carefully the experience to be learned from the last occasion in the Brussels negotiations, we felt it right to have a resident Minister in Brussels—a resident Minister who happens to be a member of another place. It is our hope that my right hon. Friend the Foreign Secretary himself will be able to take part in the periodic discussions and to report to the House; but we believe that there should be a Minister resident there. I think that the failure to have one there on previous occasions was one of the difficulties we had.

Mr. Heath: As the Prime Minister prides himself on accuracy, I am sure he will recall that when my right hon. Friend the Member for Kinross and West Perthshire (Sir Alex Douglas-Home) was Foreign Secretary in the Lords I was Lord Privy Seal with him at the Foreign Office carrying out negotiations in Brussels and, therefore, able to report to the House of Commons directly about the negotiations. That is surely the method which ought to have been employed this time.

The Prime Minister: Certainly the right hon. Gentleman was Lord Privy Seal, but even he will concede that even in those days there were very many wide issues on foreign affairs on which it would have been right to have had a Foreign Secretary reporting to the House, going right outside those negotiations.

Mr. Speaker: Mr. Maxwell.

Mr. Shinwell: Could I ask my right hon. Friend a serious question?

Mr. Speaker: I have great admiration for the right hon. Gentleman, but I did not call him. Mr. Maxwell.

Mr. Maxwell: Would my right hon. Friend tell the House what news he has as to when our application to enter the Common Market will be considered, having regard to the fact that the Foreign Ministers of the E.E.C., because of the grave situation in the Middle East, had


to postpone consideration of our application?

The Prime Minister: My hon. Friend will know about the difficulties which arose yesterday because of the bursting of the Middle East crisis. There are hopes, I think, that the Foreign Ministers will be getting together in the very near future when our application will arise.

Mr. Hastings: In view of the Prime Minister's long reconnaissance around Europe, can he say whether he fully anticipated General de Gaulle's reaction to our application?

The Prime Minister: The hon. Gentleman must realise that it was not possible to get any clear answer out of General de Gaulle on this question until we made an application. That was his attitude. It was the attitude of the Six. If we had said that we were not going to make an application until he said that we would be accepted in, there would never have been an application. [HON. MEMBERS: "Oh."] There would never have been an application, because he and the rest of the Six were unwilling to rule on it until there was an application. That was the advice we had from the Leader of the Opposition, and it was sound advice for a very long period of time. I certainly have not accepted that we have been turned down by the President of France, which is what seems to underly the hon. Gentleman's question.

Mr. Shinwell: Could I ask my right hon. Friend a serious question? Can he explain why, in these important negotiations which are about to take place and which fundamentally concern the interests of our Commonwealth, with which we are closely associated, no Minister from the Commonwealth Relations Office is to take part in the negotiations?

The Prime Minister: I think that my right hon. Friend is misinformed about this. When formal negotiations take place my right hon. Friend the Foreign Secretary will be accompanied by whatever Ministers are necessary for the particular subject under discussion, whether it happens to be agriculture, including Scottish agriculture or other Scottish questions, or whether it happens to be Commonwealth matters. Whatever Ministers are relevant will be accompanying my right hon. Friend.

Several Hon. Members: rose—

Mr. Speaker: Order. We are past Question Time.

PRIME MINISTER (VISIT TO CANADA AND U.S.A.)

The Prime Minister (Mr. Harold Wilson): With permission, I will now answer Questions Nos. 1, 3, Q4, Q8 and Q18.
During my visit I was able to have very full discussions over a wide range of topics with the Prime Minister of Canada, the President of the United States of America, the Secretary-General of the United Nations, and the President of the Security Council. Much of the content of these discussions must, of necessity, remain confidential, but I can tell the House that the situation in the Middle East figured prominently in all of them; and that, in addition, President Johnson and I discussed the situation in Vietnam in some depth.
My talks about the Middle East were aimed at securing conditions in which the countries concerned in the Middle East could be fairly asked to maintain continued restraint and not to resort to violent action. In particular, they related to the problem of the freedom of passage in the Straits of Tiran.
As my right hon. Friend said yesterday, the events of yesterday morning have overtaken these discussions, but the House will recognise their direct relevance to any long-term settlement capable of securing and maintaining peace in the Middle East on a basis which could be regarded as honourable by all concerned in the area. It will be our objective in securing the cease-fire for which we are pressing to ensure that such a long-term settlement is achieved. The issues I was able to discuss in such depth last week will of course, be highly relevant.
I now turn to the current situation. Since my right hon. Friend spoke to the House yesterday, there has been a flood of news, a great deal of it conflicting, about the fighting in the Middle East, though a pattern seems to be emerging. The most serious operations on the ground seem to have been on the United


Arab Republic/Israel border, but information about them is unclear and disputed. Yesterday's air action by the Israel Air Force against United Arab Republic airfields was extended to airfields in Jordan and Syria. There are also reports of advances by Israel forces into Jordanian territory and the capture of the towns of Jenin and Latrun. The local truce in Jerusalem which was arranged yesterday did not, unfortunately, hold, and fighting continued into the night.
I would like to add the voice of Her Majesty's Government to that of His Holiness the Pope and others who have appealed for a cessation of fighting in the Jerusalem area before terrible damage is done to places which are sacred for three of the great religions of the world.
A most serious development has been the deliberate spreading by the United Arab Republic Government of entirely false accusations that British and American air forces have taken part in the fighting on the side of Israel. It has been reported that President Nasser has announced that he will, in retaliation, close the Suez Canal to navigation. President Aref of Iraq is also reported to have said that he has ordered a cessation of the pumping of oil to the Mediterranean for the same reason and there have also been reports that the Kuwait Government have forbidden oil exports to British and American destinations.
Her Majesty's Government have already categorically denied this monstrous story, and all our Ambassadors in the Arab countries have been instructed to make clear to the local governments that this is a malicious and mischievous invention. One story alleges that aircraft from British aircraft carriers have taken part in the fighting. During the past week the only British aircraft carriers in the area have been H.M.S. "Victorious", which has been at Malta, and H.M.S. "Hermes", which has been at Aden, each over 1,000 miles away. In view of these incontrovertible facts, we are calling upon the Arab Governments not to disrupt commercial arrangements which are as much in their interest as ours on the basis of such false statements.
In New York, the Security Council met promptly as foreshadowed, but then rose

for private consultations, which continued for 14 hours. I can only tell the House of my regret that a resolution calling for a prompt and general ceasefire has not yet been passed. I think that it is vital that there should be no further delay.
As regards the shipment of arms, as my right hon. Friend informed the House yesterday we are consulting with other Governments who are suppliers for the area. The House will realise the desirability of ensuring, so far as we are able, that any embargo covers all arms supplies to the area, from whatever source. Pending the outcome of our consultations, we are suspending any further shipments to any of the countries involved.

Mr. Heath: The House was glad to hear the Prime Minister confirm that, in his discussions with President Johnson, he made clear that any measures to assert the rights of the maritime Powers in the Gulf of Aqaba are still relevant and they must take their part in any settlement for permanent peace. I believe this to be so. Second, we agree with the Prime Minister that it is absolutely right to use every means possible to show to the Arab countries that British forces are taking no part in the conflict.
May I now put three questions, recognising that the situation is still very fluid. First, in the Prime Minister's discussions with President Johnson, what contingency plans were made to deal with the situation which may now have been brought about, with the Suez Canal closed and certain Arab countries denying oil to Britain and to the United States?
Second, is the right hon. Gentleman now having any discussions with European colleagues about what action can be taken to deal with this situation? Perhaps he could state the Government's view on whether President Nasser is entitled in these circumstances to close the Canal. It would appear that, even on his own position in 1957, he is not entitled to do that, and that it should be possible to get an interim order from the International Court making this clear.
Third, in his discussions with President Johnson, did the Prime Minister propose changes in his policy for British forces in the Far East and in Aden as a result of the present situation?

The Prime Minister: I need not comment on the right hon. Gentleman's opening remarks. We are in agreement there.
The principal contingency plans which we started to discuss were those which would have been required in a different state of affairs in relation to the Aqaba situation. But, of course, we arranged to keep in the closest touch, which we have done, on any change in developments if fighting were to break out. We had some discussions on oil, and those discussions will continue, although, as regards both the United States and the European countries which might be involved if this plan were proceeded with, the right forum would be the O.E.C.D., which has its own special arrangements for dealing with all matters, emergency or otherwise, in relation to oil.
As regards the Suez Canal, the news is very conflicting and confused on whether there is a temporary or more than temporary closure. There seems to be some confirmation from the area that the Canal is at this moment closed. We do not know how long it will last. As to legality and entitlement to close it, the right hon. Gentleman is right: closure to peaceful nations—and Britain is in that position—whether for a reason of the kind which, I hope, I have satisfactorily dealt with this afternoon or for any other reason, is quite beyond the legal capacity of President Nasser.

Sir Knox Cunningham: Will the Prime Minister go a little further and say what understandings were reached in his discussions with President Johnson with regard to maintaining United Kingdom oil supplies from across the Atlantic?

The Prime Minister: There was no detailed discussion about that particular contingency, apart from the arrangement for urgent discussion if a situation like this were to arise. I am sure that, despite the feverish heat and passion in the Middle East at this time, the Middle Eastern countries concerned, and especially their Governments, will recognise that what they are talking of doing is not so much cutting off our oil but cutting off our markets from their oil, and that this might have very serious effects for their long-term sales position. This country would not be willing to be put twice in a decade in a position in which this kind of threat or blackmail could

be held out. There might be a number of people in this country thinking in terms of long-term contracts with other oil supplying areas, which might have the most profound and devastating effects, which we should all regret, on the Middle East.

Mr. Marten: Did the Prime Minister discuss with President Johnson the question of forming a United Nations peacekeeping force? Does not he agree that, if there is to be a cease-fire, the first thing which the United Nations will probably want to do is to put in a substantial peace-keeping force as soon as possible to separate the contestants, and that it should get on with the formation of that force now?

The Prime Minister: In the discussions last week, it was widely agreed among those with whom I spoke—both the Prime Minister of Canada and the President of the United States, and it was the basis of a lot of our discussions in the United Nations building—that as part of a long-term settlement we would need some kind of United Nations peace-keeping force restored to that area, but including the Israel side of the borders as well as the Arab side of the borders.

Mr. Blaker: I understood the Prime Minister to say just now that closure of the Suez Canal to peaceful nations would be quite unjustified. I am sure that he would not wish to give a false impression. Perhaps he would care to clear the point up. Does not Article I of the Convention of 1888 lay down that the Canal will always be open, in peace or in war, to ships of all nations?

The Prime Minister: I was not attempting to give a legal construction of the whole Suez Canal Convention. What I was trying to make clear is that we are not at war with Egypt, as the tendentious propaganda suggests. We are in their context a completely peaceful nation, not taking sides at all in this dispute and fighting. Clearly, in these circumstances, the Egyptians have no right to close the Canal to us and to others because of trumped-up statements of the kind which have been made.

Mr. Spriggs: The people of North and South Vietnam have been suffering death and destruction for many years. What


steps is my right hon. Friend prepared to take to bring about a peace conference on Vietnam?

The Prime Minister: As I said, I discussed this at considerable length with the President of the United States, because we both agreed that the crisis in the Middle East was no reason for neglecting a much more long-standing crisis in Asia. The position remains exactly as it was before; we are prepared to take any initiative, as is the United States, to get armistice talks, to get ceasefire talks, and to get a peace conference, whether at Geneva or anywhere else, if only Hanoi would come to the conference table with us.

Mr. Alfred Morris: In my right hon. Friend's discussions with the President of the United States, was consideration given to bilateral or multilateral action outside the United Nations if the United Nations finds it impossible to conciliate in the grievous conflict in the Middle East?

The Prime Minister: To a considerable extent, the context in which we were talking has been changed by the events of yesterday. We were concerned with what could be done to secure some understanding about freedom of passage through the Straits of Tiran. In those circumstances, we decided to put full weight behind the Security Council and, at the same time, to try to secure a multilateral declaration of maritime Powers, and only if those efforts failed should we be prepared to consider other matters. In the event, while the Aqaba question which we discussed will be highly relevant to a peace settlement, as the right hon. Gentleman the Leader of the Opposition agrees, it has been overtaken now by the actual outbreak of fighting.

Mr. Thorpe: I accept that the Government's first priority is to obtain a cease-fire through the United Nations, but does the Prime Minister recall that in 1950 the Labour Government made a firm declaration, in company with the Americans and the French, that they would intervene to prevent the violation of armistice or frontier lines in the Middle East? On the assumption that Israel were threatened with being driven into the sea, are we to take it that the Government prefer to wash their hands of

this obligation, or do they believe that they have a continuing moral obligation for the future of this State?

The Prime Minister: The right hon. Gentleman's question is extremely hypothetical. Statements about the tripartite declaration have been made by successive Governments; a statement was made by one of my predecessors and I myself have made a statement about it. The tripartite declaration was made principally in the context of arms supplies at a time when the signatories to it were the only arms suppliers to the Middle East. The situation has been very much changed since that time. Mr. Macmillan, in 1963, and my right hon. Friend and I since, have made clear that we do not think it relevant to the present situation. What is relevant is our obligation as members of the United Nations.

Mr. Driberg: When my right hon. Friend discussed Vietnam with the President, was any reference made to the disclosure in Toronto that the Assistant Secretary of State for Far Eastern Affairs had threatened total nuclear retaliation against China if China should enter the Vietnam war, even with conventional weapons?

The Prime Minister: No, Sir. No reference was made to that. I have not seen that particular report and I cannot say anything about that. The only member of the United States Government who has authority either to threaten or invoke such a threat is the President of the United States, and I am satisfied that that is not his intention.

Mr. Sandys: Can the Prime Minister give us some indication of the kind of action he has in mind to secure the reopening of the Suez Canal?

The Prime Minister: I have made it clear that it is only in the past few hours that this report has come through. We have been checking on its accuracy, content and meaning. I think that the right hon. Gentleman would not wish us to jump to any conclusions about what our attitude should be. I am sure that he will be particularly concerned that we should not jump to wrong conclusions about how to set about it.

Mr. Hale: As a number of the combatant Arab nations are members of the sterling area, is not this war on their


side being partly financed at the expense of the £? May not it be necessary, in view of the embargoes they announced today, for Her Majesty's Government reluctantly to consider a moratorium upon those States which have declared a trade war upon Britain?

The Prime Minister: I am not sure if the opening part of my hon. Friend's question meant—I am sure that he did not mean this—that we were some way financing this war. We are not financing it in any way. It is true that a number of the countries on both sides hold balances in this country. This is a commercial matter, and I am quite sure that my hon. Friend's suggestion would not be appropriate in present circumstances. We have had no suggestion in any form of economic warfare against this country. I think that it would be quite wrong to consider that solution.

Mr. Tapsell: While we all recognise the importance of not allowing the conflict in the Middle East to drag the great Powers in to conflict with one another, will the Prime Minister recognise that many of the small Powers in the Middle East are deeply reluctant to have their affairs settled by the great Powers? Will he, therefore, direct his mind to calling a peace conference with one of the smaller neutralist Powers in the chair?

The Secretary of State for Foreign Affairs (Mr. George Brown): Which one?

The Prime Minister: That raises the question, "Which one?". I think that this matter should be left to the Security Council. The Security Council is properly representative of great Powers, small Powers, Middle East Powers and neutral Powers. I think that it is a matter for the Security Council. We have given every support to the proposal of the President of France for close four-Power co-operation under the aegis of the Security Council to that end. As the House will know, my right hon. Friend and I are in very close touch at this moment with the heads of Governments of the other three permanent members of the Security Council.

Mr. Dickens: Did the Prime Minister make it clear to President Johnson that the British Government will dissociate

themselves from any further American escalation of the war in Vietnam, and, in particular, will strongly oppose any American land invasion of North Vietnam.

The Prime Minister: The President of the United States fully understands our position so far as any further escalation is concerned, including any crossing of the border or invasion of North Vietnam.

Mr. Burden: While the Prime Minister has given the complete lie to the malicious invention of Colonel Nasser regarding British air cover over Egypt yesterday, does he agree that while that invention might indicate the massive blows that were struck against him it also indicates a very dangerous situation in which, whenever such blows are struck, Colonel Nasser might well try to blame us so as to involve us with Russia?
However successful the Israelis may be, they can never conquer the Arab States, so will the Prime Minister undertake to put into discussion immediately with the United Nations considerations to try to ensure the future of Israel when this war has ended?

The Prime Minister: The hon. Gentleman was quite right to stress the dangers which, as he indicated, are only part of the dangers. I have made clear that when my right hon. Friend meets the Arab Ambassadors later today he will give them chapter and verse for our denial of the malicious statement that has been made. This is also being made clear in the capitals of the countries concerned.
The second point was on?

Mr. Burden: The limited success of the Israelis.

The Prime Minister: I do not think that there has been any suggestion of a war of conquest here. The Prime Minister of Israel has said that Israel seeks no territorial changes, but wants to be in a position to resist aggression. I think that we can help best in these circumstances by not entering into declarations on these questions. Our job is to help, with those on the Security Council, to get a peace which satisfies the honourable requirements of all parties in the area.

Mr. Winnick: While we want to get a cease-fire as quickly as possible, may I


ask whether my right hon. Friend is aware that many people in Britain consider Israel now to be in the same position as we were in 1940, standing alone and righting those who want to destroy her and put her people to death?

The Prime Minister: I think that historical parallels, particularly in the Middle East, can very often lead to the wrong conclusions and dangerous courses of action. We have stated our position; it was fully stated in the debate last week. The Israeli Government have made it clear that they are fighting in this conflict on their own and do not desire outside help. It would be very harmful for me to follow up the kind of question put by my hon. Friend.

Mr. Walters: What new steps does the Prime Minister propose to take to bring about a cease-fire irrespective of which way the war happens to be progressing?

The Prime Minister: This is being done through the Security Council, where my right hon. Friend is in hour-by-hour touch with Lord Caradon and giving him instructions as to the line he should take there. We are working for a cease-fire as quickly as possible so that we can then discuss the more long-term problems that need to be laid down if we are to have some kind of guarantee against this kind of tension and war arising again. In addition, as I have said, we are in very close touch with the other Governments principally concerned, not themselves being Governments involved in the fighting.

Mr. Molloy: In his discussions with the President of the United States, did my right hon. Friend raise the question of the United States now facing reality and making a move to recognise the People's Republic of China at every level of diplomacy?

The Prime Minister: Not on this occasion, Sir. There was a lot more to talk about, and the President of the United States fully understands our point of view on this, which has been explained both by my right hon. Friend and by myself in speeches to the General Assembly of the United Nations.

Sir Alec Douglas-Home: I understood that the Prime Minister, in talking about an embargo on arms, rightly said that

this needed close consideration because it must cover all suppliers. I understood him to go on to say that this country was suspending the shipment of arms to any country in the area, or am I mistaken? He will be aware that the Soviet Union is doing nothing of the kind. How long will the shipments from this country be suspended if the Russians do not take the same action?

The Prime Minister: We are trying to find out the position with regard to the other countries. A statement has been made by France which we are trying to verify and get elaborated, and the position of the Soviet Union needs to be known more clearly than it is at the present time.
But I agree with what I think is the right hon. Gentleman's point of view, that whatever is done should not be on a basis which creates unfairness as between one side and another in the Middle East. We have, of course, arms deliveries on order not only to Israel, but to other areas of the Middle East. We are, therefore, temporarily making this administrative suspension of shipments while we explore the situation with other countries, and we shall review the matter again tomorrow. It is a 24-hour suspension in the first instance.

Mr. Mendelson: Will my right hon. Friend bear in mind that if it is found that the Soviet Government are continuing arms supplies to Egypt and to Syria, whose Governments have publicly pledged the destruction of Israel, our country will not leave the people of Israel without the wherewithal to defend themselves.

Hon. Members: Hear, hear.

Mr. Speaker: Order. We are discussing a very grave issue.

The Prime Minister: I have said that we believe that the proper settlement of the arms question should be on a basis of fairness and balance between the two sides who are fighting. Certainly, if we were to find that arms were going from anywhere else to one side, that would be a very important issue to be taken up in our reconsideration of the matter tomorrow. At the moment, we are by administrative action stopping shipments, whether to Israel or to Arab countries,


until we have a clearer picture of the international arms supply to those areas.

Mr. Boyd-Carpenter: In view of the disappointing news which the Prime Minister has given of the state of affairs in the City of Jerusalem, and the fact that serious damage there would be a world tragedy, will he consider taking an initiative with all the Powers concerned to have Jerusalem declared an open city, in the same way and for the same purposes as Rome was so declared in the latter stages of the last war?

The Prime Minister: I should like to make it clear that not only do we fully support the appeal made yesterday by His Holiness the Pope to that very end, but that we have gone further and made plain our willingness, in addition to what is happening in the Security Council, to assist in a local sense to do anything to bring about a cease-fire to protect Jerusalem, not only to stop the damage and carnage there, but to protect the Holy City itself. We have actually been at work in trying to arrange a local cease-fire in Jerusalem.

Mr. Heffer: Further to the point concerning arms sales, will my right hon. Friend say what discussions are now taking place with the Soviet Government to stop Soviet arms going to the Middle East?

The Prime Minister: My hon. Friend will know that we are in the closest touch with the Soviet Government. I have exchanged a number of messages with Mr. Kosygin on the broader issue, my right hon. Friend is in close touch with the Ambassador—I saw the Ambassador myself this afternoon—and we are in close enough touch, I hope, to be able to establish the position on this question. When we have established it, we will consider in the light of that what our own attitude should be.

Rear-Admiral Morgan Giles: In view of all these threats to our interests and, indeed, to the interests of the Commonwealth as a whole, will the Prime Minister now make an unequivocal statement that Britain will maintain an effective presence east of Suez for the foreseeable future?

The Prime Minister: This raises a much wider question than the position in

the Middle East, although it is, of course, a fair question, because it arose out of my talks with the President of the United States. We are considering that position. I can now take into account the views of the President. We shall be discussing the position with the Australian and New Zealand Governments during the next two or three weeks before an announcement can be made to the House.

Mr. Ginsburg: Notwithstanding what my right hon. Friend has said about arms supplies, would he be prepared to give the House an assurance that there will be no holding up over the next 24 hours of any request by the Israeli Government for essential medical supplies?

The Prime Minister: I will certainly consider the question of essential medical supplies. I agree that that might require other considerations. I was, of course, referring to arms for the actual fighting, and to arms for both sides.

Sir D. Renton: Further to the question by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), will the Prime Minister bear in mind that the initiative which he has used and will use further should also relate to the holy places at Bethlehem, Nazareth and Galilee?

The Prime Minister: Yes, Sir. I think that I am right in saying, however, that those places have not been in any danger as yet, whereas there has been heavy fighting in Jerusalem. Our representatives in Jerusalem have shown great courage—they have been very much under fire themselves yesterday in a very dangerous situation—in what they have been doing to try to arrange a local accommodation in order to secure a cease-fire. If a cease-fire could be arranged, I agree with the right hon. and learned Gentleman about extending it to other areas which were involved in the bilateral discussions between Israel and Jordan.

Mr. Kelley: Would not my right hon. Friend agree that it might assist clarification of the situation if Her Majesty's Government stated their attitude to the decisions which were imposed on the Middle East as a result of the tripartite action in 1956 and whether they agree that that situation should persist or otherwise?

The Prime Minister: If my hon. Friend is referring to the settlement made by Mr. Hammarskjoeld at the beginning of March, 1957, relating to the Gulf of Aqaba, the position of Her Majesty's Government and, I think, of the House as a whole, was made clear during the debate last week. As for other issues, we have now to try to get a settlement that will settle those issues, if we can, once and for all.

Mr. Hugh Fraser: Would not the Prime Minister agree that perhaps the most disturbing element in the whole situation is the total breakdown of the United Nations and the Security Council? In view of this, will he urgently call a meeting of the Foreign Ministers of the four great Powers, first, to see whether there cannot be an agreement about reinforcement of arms for the area and, secondly, if that should break down, to try to establish a cordon sanitaire to see that no arms come in?

The Prime Minister: No, I think that the right hon. Gentleman's approach is not the right one. I think that all of us feel, as was stated by right hon. Gentlemen opposite and by myself last week in the debate, that the United Nations has taken a serious blow by the decisions of three weeks ago. This was a point which I made strongly when I was in the United Nations building.
It must, however, be a matter for the Security Council now to secure a ceasefire. I believe that it is right for the four Powers concerned, instead of calling a conference at some time in the future, now to work, as we are trying to work, within the Security Council to get that. If it cannot be done by quadripartite co-operation in the Security Council, it cannot be got by quadripartite cooperation outside the Security Council.

Several Hon. Members: Several Hon. Members rose—

Mr. Speaker: Order. I need not assure the House that Mr. Speaker shares the awareness of every hon. Member of the House of the gravity of the issues which we are considering. We must, however, move on now to the next item of business.

NIGERIA

Mr. Tilney: Mr. Tilney (by Private Notice) asked the Commonwealth Secretary whether he will make a statement on the safety of British subjects and the safeguarding of British interests following full mobilisation in Nigeria.

The Secretary of State for Commonwealth Affairs (Mr. Herbert Bowden): I am in continuous touch with our High Commissioner about the situation in Nigeria. There have been no incidents involving British lives or property. Up until today it has not been necessary to advise any United Kingdom citizens to leave the country, although some families are moving away from the border between the Northern and Eastern Regions, which seems the most dangerous area if fighting should break out and it may well be necessary to arrange for further movement at short notice.
We still hope that this trouble can be settled peacefully, and I am sure that the House will support me in this earnest desire.

Mr. Tilney: In view of the large number of Britons in Nigeria and the substantial British capital investment there, can the Secretary of State say what effect the evacuation of United States personnel is having, what advice he is giving to British shipping companies faced with the Federal blockade and what action should be taken by British business companies which have commitments to the Government of the Eastern Region of Nigeria or with companies in what is now known as Biafra?

Mr. Bowden: As to the evacuation of British citizens from Nigeria, the only danger spot at the moment is the Northern area of Eastern Nigeria. While there has been some movement of British nationals across the bridge into other parts of Nigeria, there has not been a great deal of this.
On the other hand, our High Commissioner has been instructed to make facilities available to those women and children, and any men—the number is about 2,000 in the Northern area of Eastern Nigeria—who may wish to leave that area. Ships are available at Port Harcourt, an airlift is available and some of them can get out by road. Our


experience so far has been that the British nationals are rather more concerned about staying there and keeping their heads down.
We are in close consultation with the shipping interests in this country. They understand the situation. It is not thought to be necessary to issue any particular directive to them, but they know that a blockade is going on in the Eastern area.
We appreciate that British business firms are facing serious difficulties, but we are doing what is possible through our High Commission there to make the position easier. It cannot be made very much easier for business interests or normal trade until peace returns to the area, but we are doing what we can.

Mr. John Lee: While appreciating that my right hon. Friend is faced with an extremely difficult problem, can he say anything about the position of the payment of oil royalties, because I am sure that he will agree that nothing should be done to imply that we give any recognition to the so-called break-away State of Biafra?

Mr. Bowden: I understand that oil supplies are normal at the moment. I hope that that will continue to be the position and that any oil royalties will be paid into a suspense account, if necessary, for a temporary period. However, payments are not yet due.

Mr. David Steel: Can the right hon. Gentleman say whether effective de facto diplomatic contact with the break-away State is continuing, in the interests of British nationals there?

Mr. Bowden: There is some association between our representatives in Enugu and the break-away régime, but at this stage there can be no recognition of the Eastern Region by ourselves, and nor has any other country recognised it.

Mr. Costain: Has the right hon. Gentleman any further details about the case of British subjects in the other regions? If he has, can he give them to the House, or publish them in the OFFICIAL REPORT?

Mr. Bowden: There is a considerable number in other parts of Nigeria, but they are extremely spread out. At this stage, we feel the only danger to be the

result of sporadic fighting in the northern part of Eastern Nigeria, and that that would affect something like 2,000 of the total figure.

Mr. Hector Hughes: As the problems out of which these differences in Nigeria have arisen are largely of a constitutional and juridical character, will my right hon. Friend say whether he is taking any steps to bring about a conference of properly constituted and qualified persons to consider those problems?

Mr. Bowden: Nigeria is an independent country, and constitutional changes are a matter for her. If she wished to have advice in this direction, we should be glad to supply what is necessary.

PRIVATE NOTICE QUESTIONS

Mr. Speaker: I have a brief statement to make on the admissibility of Private Notice Questions.
The House will know that, hitherto, Questions have not been allowed by Private Notice if they anticipated a Question of which notice had already been given. In the words of Erskine May (17th Edition), at page 358, the Question on the Order Paper must first be withdrawn, and withdrawal becomes effective on the publication of an Order Paper no longer containing the Question.
On occasions, that rule has been considered unduly restrictive by my predecessors and by the House, particularly when Private Notice Questions of some importance have appeared to be blocked by a Question for Written Answer. Recently, the Select Committee on Procedure recommended in its Fifth Report of this Session that in future, when considering Private Notice Questions, I should be entitled to disregard any Question for Written Answer and should take account only of Questions which are liable to be answered orally within a reasonable period of time, having regard to the urgency of the subject matter. From such soundings as I have taken, I understand that it would meet with the general approval of the House if I were to adopt that recommendation and, therefore, I propose to adopt it as from today.
May I make it clear at once to hon. Members that this will not result in any


sudden or marked increase in the number of Private Notice Questions allowed. The discretionary power of the Chair will be somewhat wider, but it will continue to be necessary for the Chair to be satisfied as to the urgency and the importance of the Question, as has been the practice in the past.

Mr. Heath: Mr. Speaker, may I thank you for your statement, and say at this stage that we welcome the introduction of this new tradition as from today.

Mr. Hogg: As the diligent will -iis-cover that it was the result of a suggestion of mine that the Select Committee made this small and recondite recommendation, may I also thank you, Mr. Speaker.

Mr. Speaker: I am sure that the House will be grateful to the right hon. and learned Member for St. Marylebone (Mr. Hogg) and for the two Committees which have followed up his suggestions.

Orders of the Day — FINANCE (No. 2) BILL

Further considered in Committee [Progress, 1st June].

[Sir ERIC FLETCHER in the Chair]

Clause 4.—(AMENDMENTS AS TO EXCISE LICENCES FOR CERTAIN TRADES.)

4.16 p.m.

Mr. Patrick Jenkin: I beg to move Amendment 65, in page 5, line 23, leave out "fifteen shillings".
After the events which the House has been discussing during the last three-quarters of an hour, I cannot honestly claim that this Amendment has the same earth-shaking importance, but I hope that it is one with which the Treasury Bench will have some sympathy.
I must preface my remarks by declaring a remote and somewhat indirect interest in that I hold a position as an employee of a company which operates a number of distilleries.
In general, Clause 4(1), which this Amendment seeks to amend, must be welcome to those businesses which are covered by the simplification of the licence duties. This covers the Excise licence which allows the operation of a brewery, distillery, tobacco factory, or whatever it may be.
Clearly, it is right that there should be some charge for such a licence, if only to cover the administrative costs. Hitherto, that licence has been calculated on a number of different bases broadly related to the output of the installation concerned. Under Schedule I of the Customs and Excise Act, 1952, for instance, a distiller's licence is based on the output in the previous year at the rate of £10 for the first 50,000 proof gallons and £10 for every subsequent 25,000 proof gallons or part of 25,000.
Under the Second Schedule of that Act, brewers are dealt with in two categories. In the case of brewers for sale, the licence duty is £1 for the first 100 barrels and 8s. for every subsequent 50 barrels or part of 50. The same Schedule also deals with private brewers who make beer for their own use. In that case the


licence duty is decided on the annual value of the brewer's house. The Third Schedule deals with beer primers, where the licence duty is £25 for the first 25 barrels and £5 for every subsequent 25 barrels.
It will be seen that, so far, all amounts are in round figures. However, when we come to tobacco, which is dealt with in the Fifth Schedule to the 1952 Act, we find a more complex scale of duties calculated for the first time in guineas. The scale here is from five guineas for under 20,000 lbs. of tobacco produced, up to a fee of 30 guineas for amounts over 100,000 lbs. What is proposed in the Bill is the substitution of a flat rate of 15 guineas for all such licences. It will be a welcome simplification, and it involves a small reduction in the amount of yield of those licence duties.
I tabled a Question to the Chancellor of the Exchequer—answered on 5th May—asking how much the yield was of the duties as they were in 1966–67; in other words, how many licences there were. It appears that altogether 453 licences were issued during that year, giving a yield of about £300,000, with the average figures being as follows: the brewers, £980; the distillers, £450 per distillery; the beer primers £66; and the tobacco manufacturers £20.
The effect of the change in the Clause, assuming that the Amendment is not accepted, will be to reduce the yield in licence duty from £300,000 to just over £7,000, so the substance of the matter must be in the Clause, where the Chancellor has, not unreasonably, forgone a very small amount of duty in favour of what must be a substantial simplification.
The Amendment is to delete the shillings from the guineas and make the duty £15, not 15 guineas. I fancy that this must be just about the cheapest Amendment that any hon. Member has ever had the privilege to move. Assuming that 453 licences will again be issued this year, the cost of the Amendment would be £339 15s. The arguments for it are simple.
First, guineas is an old-fashioned concept. Indeed, with great respect to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), it is a concept and not a coin. It may be all right for barristers, because the barrister does not

get the shilling in the guinea. It is his clerk who gets it. No doubt we shall one day see a statue standing in the Temple to the man who invented this invaluable tradition. But why should large businesses be taxed in guineas?
Secondly, when we go decimal, on whatever system, surely we do not want to find ourselves dealing with licences in cents or mils, or whatever we settle for. For example, the licence would be £15 and 75 cents on the proposal favoured by the Chancellor of the Exchequer or £15, seven florins and 50 mils on the proposal that I put in Committee on the Decimal Currency Bill. But whichever it is, this is obviously a complication.
Thirdly, the Government seem to have harmonised round the most complicated of the old duties—the Tobacco Duty, which was the only one set out in guineas. I ask the Committee to take its courage in its hands, take a breathtaking leap into the second half of the twentieth century, and settle for these duties in pounds and not in guineas.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I am grateful to the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin) for his welcome in general to the Clause. I wondered whether he might not have declared a second interest, in this case a negative one, as a barrister. If he is going to start reducing all guinea fees to pounds, we will see how progressive our colleagues in the Temple are about that.
The reason why the 15 guinea figure was used rather than £15 is very simple. It is that, in adopting a flat rate—which we do in this Clause—it was thought best to adopt the rate already applicable to other comparable excise manufacturers, namely, rectifiers and compounders. I am sure that all hon. Members—like myself, after I had made inquiries—are thoroughly familiar with their activities.
The hon. Gentleman raised an argument on the position under decimalisation, which is some years off. The position clearly is that, when we get to decimalisation, a second decimal currency Bill will have to contain many amending provisions in consequence of decimalisation. It will then be for consideration whether it would be right for simplification to amend these flat-rate


charges. I think that then would be the time to do it, including the case covered by the Clause.
To keep the position open, I cannot think that there is any enormous complication in paying the sums of £15·75 rather than £15, but I suggest, for the reasons I have given, that, for the time being, it would be better to keep a single flat-rate duty.

Mr. John Smith: This subsection seeks to charge a duty of 15 guineas on certain licences and the use of guineas made me suspicious that the people guilty of using such an old-fashioned unit of value might also be guilty of old-fashioned thinking and that this Clause might be a piece of Parkinsonian bureaucracy that we could do without.
The Clause is two pages long and quite complex. It contains no fewer than 50 references to other Acts or other parts of the Bill. Accountants will have to study it. Litigation will flow from it. We must, therefore, assume that it is a reasonably important matter to justify adding so much sand to the sand already in the works of life. It seeks to charge these guineas for licences—which, incidentally, expire on 30th September, to add to the confusion—to brew beer, add solutions to beer and manufacture tobacco.
There are complicated other provisions about rectifiers and compounders and makers of sweets and part-year licences. We have heard that, if the same number of licences is issued this year as before, only £7,000 will be raised and, also, a charge might be thought to be justified to cover administrative expenses. I would have thought that, when part-time licences and refunds of licences have been taken into account, there was nothing in it for the country as a whole.
I wonder how many people take out part-time licences to add solutions to beer and how many manufacturers of tobacco apply for relief under Section 169(2) of the 1952 Act on permanent discontinuance of a trade. It might well be necessary to license these trades, but surely, as a means of raising money or even of covering expenses, it is absurd and wasteful. We would all be better off without these additional words in the Bills and Acts that we have to read and if no charge were made for these licences at all.

Mr. Patrick Jenkin: I have listened to the Financial Secretary's explanation and no doubt we shall have to return to the matter on the next decimal currency Bill, when that appears. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Patrick Jenkin: One of the disadvantages of this sort of provision is that there is no opportunity for the Government to explain, either in the Budget speech or on Second Reading of the Bill, the reasons for some of the very minor provisions which appear in the Bill. This is the opportunity to do so, and I simply ask the Financial Secretary to give some explanation of what lies behind Clause 4(5) which, so far as I can understand it, removes the need for a licence for a vinegar maker.
Vinegar is widely defined in excise measures as anything which might be used for vinegar. In this context, one is not dealing with the same dichotomy as one has under the Merchandise Marks Act and trade description regulations, where one can only describe as vinegar that which is vinegar, a double brewed material. One has to call the other one non-brewed condiment, and I understand that there is a Non-Brewed Condiment Manufacturers' Association.
There have been changes recently in the techniques of manufacturing vinegar used normally by the housewives, and it may be that it is that which has led the Government to make this change. It would be helpful to the trade to have an explanation in public, and I hope that the hon. and learned Gentleman will be able to explain why this duty is being relieved altogether.

4.30 p.m.

Mr. MacDermot: The reason for the different treatment is that, for administrative convenience, the other licences were not abolished because registration of these manufacturers of highly dutied commodities is required for revenue control purposes and the fees are needed to deter frivolous applications for registration. In the case of the vinegar makers' licences, this has completely outlived its usefulness and can be abolished and any risk to the revenue can be adequately met without licensing.

Mr. Edward M. Taylor: I am reluctant to comment on this Clause as I am a teetotaller and a member of the Temperance Group of the House of Commons, but there are one or two small rating matters which arise in connection with subsection (4). I am sorry that there is no member of the Scottish Office team here, but I know that, with their usual conscientious application to duty, Ministers will have considered the point in detail.
The first issue which arises on this question of the rent to be paid for lodgings in a distillery in Scotland and in England is that we are introducing a new system. The new system is decided on the basis of the gross annual value as in the General Rate Act, 1967, in England, which was a consolidating Act, and the Valuation and Rating (Scotland) Act, 1956, for Scottish distilleries. It is obvious that there can be marginal differences in the basis of assessment for both countries, but no great problem would arise. What I fear is that there may be a considerable distortion in the amount which will have to be charged.
This is because, first, we have different valuation years in Scotland and England. We had ours last year and the English revaluation has been postponed perhaps indefinitely because of the shortage of valuers. Secondly, in Scotland we have industrial derating which has been abolished in England and this difference may remain indefinitely.
My specific questions are in connection with operating subsection (4,b). Is there any obligation on an assessor in a Scottish town or county to make a separate valuation of these lodgings? We have a strange arrangement in Scotland for controlling assessors. They are paid by local authorities, although they do not act under their general jurisdiction. If they have to get this figure and if no agreement is reached, is there an obligation on the assessor to make such a valuation, and who pays the bill?
Once this has been done, if there is statutory authority, is it put in as a separate entry in the valuation roll? It would appear that such lodgings in a distillery do not form any meaningful part of a separate valuation. Will it be essential for a separate entry to be put in the valuation roll? It would seem

very strange, because these lodgings, as an integral part of the building, will not be a separate entity for rating purposes.
Is there any statutory obligation on as assessor in Scotland to carry out such a valuation, should it be required, and will there be a separate entry in the valuation roll? I know that the answers will be obvious, but I should like to hear them.

Mr. John Peyton: I rise only for a moment to congratulate my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on the great charity of the way in which he found the arguments of the Financial Secretary entirely acceptable and so persuasive. That is indicative of the warmth of his heart and his general kindly disposition.
I feel that the Government should be congratulated on this Clause. We have here on earth-shaking concession, that an excise licence shall not be required for the purpose of carrying on the trade of a maker of vinegar for sale. This is remarkable, because it is a concession and because it is intelligible. In the background of the Bill it deserves some merit and comment. I wonder why it is that under successive Governments this requirement has lived on and on. I wonder whether the Commissioners of Customs and Excise could not be persuaded to disgorge this sort of means of raising revenue rather more speedily instead of throwing us one crumb after another.
However, I do not want to run the risk of annoying the Financial Secretary again, so I will curtail my remarks. He said the other day that one of my speeches was a good argument for sending the Finance Bill upstairs. I hope that he will not repeat this argument today, because it might lead me to exceed my normal bounds of civility and habitual courtesy.

Mr. John Smith: I said just now that we must be on our guard against piling up legislative clutter in these Bills. My hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor) illustrated that very well. The subsection to which he referred deals with distillers who refuse to provide excise officers with lodgings at a rent which the Commissioners think reasonable. This machinery involves reference to the Act of 1952


which is not, as most accountants and business people will think, the Income Tax Act or the Finance Act, but the Customs and Excise Act. Section 93, which incidentally has 91 words before reaching the first comma, refers to three other Acts.
I wonder whether all this is necessary. How many disagreements have there been about Excise officers' lodgings? How many of these good men have been stranded in glens? Surely, in this day and age, the Commissioners do not need special legislation to see that their staff are housed.
The rest of this Clause, as we have heard, deals with vinegar makers. These lucky people henceforth are exempt from the Clause. If the vinegar makers have burst their chains, surely these other people, the adders of solutions to beer, can be let off as well. The whole Clause is an enormous improvement on Clauses and Schedules in the Act of 1952, which was even more complicated, but all that is 15 years ago, in the days before these decimal guineas, and we have progressed since then and life has become more complicated. The matters dealt with in this Clause should be left behind us and there should be no charges for these licences and nothing about arbitration for distillers who refuse to house Customs and Excise officers. That we can do without the Clause.

Mr. MacDermot: I welcome the conversion of the hon. Member for Yeovil (Mr. Peyton) in his attitude towards the Customs and Excise in that he now finds it such a liberal Department. I assure him that it needed no pressure from Treasury Ministers for the Customs and Excise to bring forward these liberalising measures. I suspect they may have been bringing them forward under the previous Administration, but at last they have been fortunate in finding a Finance Bill in which room may be found for them.
The hon. Member for Glasgow, Cath-cart (Mr. Edward M. Taylor) raised a problem about the valuation procedure in Scotland, on which I speak with the diffidence of the ignorant. However, I can assure him that in most cases these premises will be what under English rating law we call separate hereditaments and will be the subject of a separate

entry and will be separate premises for rating purposes. In the majority of cases they will already have a gross annual value for rating purposes and it will not be necessary to determine one. In the event of there not already being one determined, one would be determined in accordance with the ordinary rating procedure.
I remind the hon. Member for the Cities of London and Westminster (Mr. John Smith) that this provision, which is long standing, that there shall be a procedure for determining these rents has been out of date since the abolition of Schedule A, since it was based on Schedule A valuations. It is for that reason that the gross annual value basis has been chosen instead.

Mr. Edward M. Taylor: I asked two questions. I asked whether in the exceptional case, where there was not a separate entry, there was any obligation on the assessor in Scotland to carry out a valuation, and whether there would be a separate entry in the roll.

Mr. MacDermot: If it is not what we would call a separate hereditament, which I take to be the same, the valuation would have to be determined by apportionment of the total value, I assume, but in the normal case it will be separate premises on their own for rating purposes.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 5.—(ABOLITION OF RETAILER'S LICENCES AND CLUB LICENCES AND CONSEQUENTIAL PROVISIONS.)

Mr. Patrick Jenkin: I beg to move Amendment No. 67, in page 7, line 28, to leave out from first 'Act' to 'shall' in line 29.
It may be for the convenience of the Committee if we also take Amendment No. 68, in Schedule 16, page 95, line 55, leave out ' except' and insert 'other than'.
It is an entirely consequential Amendment and the two should go together.

The Chairman: That will be convenient, if the Committee agrees.

Mr. Jenkin: This is purely a drafting matter. It is simply a question of why it is necessary to put both into Clause


5(1,a) and into the last line but three or four on page 95 of the Bill the fact that Section 4(6) of the Finance Act, 1959, is not to be terminated at the same time as the rest of Section 4, but is to terminate at some other date. The Amendment would simply leave Clause 5(1,a) reading:
the enactments specified in Part I of Schedule 16 to this Act shall cease to have effect.
Amendment No. 68 would leave line 55 on page 95 of the Bill saying:
Section 4 (other than subsection (6))
and following that unchanged would be the words:
As from 1st May 1968, section 4(6).
We do not in any sense intend to alter the meaning of Clause 5. It is quite clear that where one is dealing with the repayments of duties which have already been paid, as does Section 4(6), that provision must remain in force for longer than those which provide for the payment of the duties. But it seems somewhat clumsy to have put into Clause 5(1,a) a special phrase in brackets and to have repeated it in the appropriate Schedule when it is apparent both from Clause 5(2) and from the bottom line of page 95 that of course Section 4(6) is to end at a different time. This is purely a matter of drafting and the Amendment is moved in a spirit of inquiry with the possible hope that the Bill as amended will be marginally improved.

4.45 p.m.

Mr. MacDennot: When I first saw the Amendments I was at first brush attracted to them as I thought that the drafting of the Bill might be improved, but when I had been suitably instructed I found my error. I had overlooked, as perhaps the hon. Gentleman had, the provisions of Clause 43(8), which is the last subsection of the Bill and which deals with repeals and is, if I may put it this way, the real parent section of Schedule 16. It is so described on page 94 of the Bill. It gives a list of repeals and is a general provision to say that those provisions shall stand repealed from the dates stated.
The reference in Clause 5(1,a) to these repeals is a duplication of Clause 43, but it is a general convenience to anyone reading these provisions, because it draws attention to the fact that one of the pro-

visions which shall take effect on 1st October is the whole of these repeals, with the exception of Section 4(6). If we were to adopt the Amendments as they stand, we would introduce a contradiction and if we attempted to extend the Amendments, we would not simplify the matter.

Mr. Patrick Jenkin: I can only wish that the Financial Secretary had had the courage of his first convictions and had stuck to his point of view. It seems pointless to say the same thing in no fewer than three places. It is said in the body of the Bill, in Clause 5, that subsection 6 does not end with the rest in 1968 and it says so on page 95 in Schedule 16 and, bless my soul, it says it again on page 96 in the three lines at the end of that part of the Schedule. This seems to be unnecessary prolixity and I am against unnecessary prolixity—

Mr. MacDemot: Oh.

Mr. Jenkin: —in drafting and I should have thought that these things could have been rather better managed. However, I have made my point and I hope that those who order these matters in future years will take notice of what has been said. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Schedules 6 and 7 agreed to.

Schedule 8.—(MODIFICATIONS OF LICENSING (SCOTLAND) ACTS 1959 AND 1962 CONSEQUENTIAL ON ABOLITION OF RETAILER'S LICENCES, ETC.)

Question proposed, That this be the Eighth Schedule to the Bill.

Mr. Edward M. Taylor: I have three questions on Schedule 8. Paragraph 13 provides that nothing in the Schedule or in the Act of 1959 as amended will make it unlawful to traffick in exciseable liquor in a theatre erected before 1st January, 1904, in Scotland. Can the Financial Secretary say specifically why he feels that this provision should be brought back into Scottish legislation? I have never been able to understand why theatres built before 1st January, 1904, should be exempt from these provisions.
My second question relates to veto polls. As the Chancellor may be aware, in Scotland we have a long-standing legal tradition whereby residents in an area can decide to have a veto poll and have all the licensed premises removed from that area. The Cathcart ward in my constituency is as large as some Parliamentary constituencies and yet does not have a public house or an off-licence or a hotel, because we have had such a veto poll. What would be the position if in such an area there were a theatre erected before 1st January, 1904? What would be the position if it were voted to have a "dry" area, in which case there would be no licensed premises, and what would be the position if there were a limitation resolution limiting the number of licences to be operated in the area?
My third question relates to trafficking in liquor in railway carriages and aircraft. It appears that there is now a difference in the laws of Scotland and England. Now that we have so many aircraft travelling between Scotland and England over a period of more than one day, commencing at 11 p.m. or 11.30 p.m. in one country, and ending on the next calendar day in the other country, we have a problem. It would appear, according to the law, that it is legal to sell liquor on a railway carriage or aircraft which is leaving England for Scotland over a period of more than one day and travelling over midnight. On the other hand, if one leaves Scotland at 11.50 p.m. to travel to England, one cannot participate in the trafficking of liquor in that aircraft, railway carriage or ship.
These are important points. Some hon. Members opposite think that they are a little funny. They may be to them, but the point is that we are daily passing legislation which makes nonsense of everything practical and sensible, and it is about time that we had a real explanation of why the Government feel that it is important to take up space in this Finance Bill to carry out these particular points, which I am afraid, in some cases do not make sense and in other conflict with the existing law and practice.

Mr. MacDermot: The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) has raised some rather abstruse points relating to the social law as it applies in Scotland. In general, the object

of these provisions is to make no alteration in the provisions of the social law. In the past, some of them, for reasons of convenience have been attached to provisions relating to Excise duty. In general, what we are doing in this Schedule is to keep alive and preserve the effect of the existing provisions even though the liability for the Excise duty is not being retained.
I am afraid that I am not in a position to inform the hon. Member what the reason is for the distinction between theatres erected before 1904 and those erected afterwards, but I am sure that there was some very good and valid reason for it. Whatever it is, if it needs to be altered, that is a matter which the hon. Member should take up with my right hon. Friend the Secretary of State for Scotland.

Mr. Patrick Jenkin: I must say that I am shattered at the profundity of the ignorance of the Finance Secretary, that he cannot provide the answer to my hon. Friend's very reasonable and, I should have thought, entirely foreseeable question as to the reason for this particular treatment of trafficking in exciseable liquors in theatres built before 1904.
We appreciate that the Financial Secretary has a great deal to think about, and perhaps he may be able to provide my hon. Friend with an answer at some other time. I have a more general point to put. It is useful to put it on this Schedule, although it would apply to a number of the other Schedules and provisions which we have accepted. We have a number of provisions in the Bill which amend in a great many cases provisions of the Customs and Excise Act and other legislation. For instance, we were discussing the Finance Act, 1959, a moment ago in a variety of detail. It will be extremely difficult as matters now stand, for anyone who has to administer the law, because he will have to look, not only at the original Act, but also at the large number of amending provisions which we now have in these Schedules.
This was the pattern of our legislation which was growing up more and more in the 1920s and 1930s. Although neither he nor I were in the House at the time. the Financial Secretary will remember that the then Member for Twickenham, a


Captain Keeling, with a number of his hon. and right hon. Friends, wrote a memorandum to the then Prime Minister, Mr. Chamberlain, in which they said that really this was not good enough, how on earth was anyone to understand legislation which was by reference, as so often it is?
They asked if the Prime Minister could not give instructions to the draftsmen to do something about it. Mr. Chamberlain made a statement in the House in which he said that he accepted the criticism and that he had given instructions to Parliamentary Counsel to include a Schedule at the end of such Bills, where the circumstances fairly warranted it, setting out the provisions of the legislation as amended.
Such Schedules have come to be known as "Keeling Schedules". They are referred to in Erskine May and they suffer from a number of disabilities in the sense that one cannot seek to amend a Keeling Schedule except as consequential to some other Amendment in the Bill. This would appear to be entirely right. These Amendments to the Customs and Excise Act appear to be legislation which are crying out for the application of a Keeling Schedule, for additional Schedules to this Finance Bill, setting out the Customs and Excise Act as amended by the provisions of this Schedule.
This is purely a matter not of drafting but of mechanics. I would not have thought that it would be beyond the abilities of the Chancellor's Department or the Parliamentary Counsel to draft Keeling Schedules that would deal with the Sections of the Customs and Excise Act which we have been considering and to include them in this Bill in time for consideration on Report.
There are a very large number of Amendments here. My hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) counted, I think, 22 references to other Sections in one Section of the Bill. This adds enormously to the complexity and the difficulties of those who have to administer the legislation. A Keeling Schedule setting out the provisions as amended would be a great simplification, and I would be grateful if the Financial Secretary would undertake to look at the possibility of doing this so that, if necessary, the Gov-

ernment could introduce the Schedules as an Amendment on Report.
It would be right to say that the Schedules, if amended, should not be amended by further amendments unless it was consequential to Amendments in the Bill as we now have it, in which case it does not seem that there would be any great Parliamentary time lost. It would be a great convenience and I hope that the Financial Secretary will look at this with some sympathy.

Mr. Peyton: While I do not share the view of my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor) on temperance, nevertheless I do sympathise with him in his request for some information about paragraph 14 of this Schedule. I rarely practise and it does not worry me or a lot of people besides but I wonder if it is a good thing that Parliament should be asked to digest this sort of legislation when no one can justify it. The paragraph that I find most offensive, and I make no apology for raising this, is paragraph 15 of the Eighth Schedule. We get into a terribly bad, sloppy habit, and successive Governments must shoulder their share of the blame for this. Paragraph 15 of this Bill reads:
In Schedule 3, in the paragraph beginning 'Does the applicant hold', for the words 'an excise licence for the sale of exciseable liquor' there shall be substituted the words 'a certificate under the Licensing (Scotland) Act. 1959, or a licence under Part III of that Act'; and for the words 'that licence' there shall be substituted 'that certificate or, as the case may be, that licence'; and, in the paragraph beginning 'Has the applicant any interest', for the words 'an excise licence for the sale of exciseable liquor' there shall be substituted the words 'a certificate under the Licensing (Scotland) Act, 1959 or a licence under Part III of that Act', and for the words 'a certificate' there shall be substituted the words 'such a certificate or licence'.
By any standards of judgment that really is awful—terrible! I have no idea what a Keeling Schedule is—[Interruption.] The right hon. Gentleman will not cut my speech short by that sort of observation. Has the Chancellor anything to say, because I will be glad to give way?

The Chancellor of the Exchequer (Mr. James Callaghan): I do not expect to have any influence at all with the hon. Gentleman about anything—either about the length or the content of his speech.


I am delighted that I have no control over its content.

Mr. Peyton: The right hon. Gentleman is, of course, a master of incivility without effort. Sitting on the Treasury Bench and being responsible for the handling of the Finance Bill, his timing is not always as good as it ought to be. We have made tremendously rapid progress with the Bill. The Chancellor of the Exchequer has got more than four Clauses and a large number of Schedules in next to no time. This kind of progress has never been made on a Finance Bill before.
5.0 p.m.
I do not think that the Chancellor of the Exchequer does himself justice or his cause any good when he fails to listen to arguments which are put forward seriously. I find words of this sort in Acts of Parliament quite intolerable. I have said for years that the sort of legislation which Parliament countenances in Finance Bill after Finance Bill is quite intolerable. I have said this no matter which party has been in power. This is a bad habit, and so far as possible verbal monstrosities of this sort should be kept out of legislation.
Their Lordships, sitting as a Court of Appeal, have had occasion several times recently to comment adversely and harshly on the verbiage which finds its way into Finance Bills. I hope that neither the Chancellor of the Exchequer nor the Financial Secretary will be tempted to dismiss this matter as being of no account. We should all begin to set our faces against obscurity in legislation, particularly financial legislation.

Mr. Edward M. Taylor: I apologise for taking up the time of the Committee, but I wish to make only two brief points and to ask two questions of the Financial Secretary. He failed completely even to try to answer any of the points which I made in all seriousness. It seems that he has not studied the matter at all. The Government have failed to take the obvious precaution of having a Scottish Minister present to comment on the points, although we have the presence of the hon. Member for West Stirlingshire (Mr. W. Baxter), who takes great interest in these matters.
The two points which I wish to make completely explode what the Minister said. He stated that there was no basic change in the law and that the Government have tried not to alter it and to make sure that, even though it may be false and wrong, it is the same as it always was. I ask the hon. and learned Gentleman to look at the 1959 Act, in which he will see two things. First, the Act did not affect the exemptions from the requirement to take out a certificate conferred on proprietors of theatres built before 1904. The Schedule provides that nothing in the Act will
make unlawful trafficking in excisable liquor in a theatre erected before 1st January 1904".
This is a basic difference in licensing law. The 1959 Act provides that nothing in it will affect the exemptions from the requirement to take out a certificate in respect of trafficking in liquor in aircraft, ships and railway carriages. But Schedule 8 of the Bill refers specifically to not making unlawful trafficking in liquor in vessels, when there is a journey on the same day—that is a major change—
or, as the case may be, if the railway passenger vehicle is a vehicle in which passengers can be supplied with food".
Obviously, this is a change which will affect people who are not travelling on the same day. When the Government propose a change like this, the least they can do is to give us the reason for it.

Mr. MacDermot: With respect, I do not think that the hon. Gentleman is right. Paragraphs 12 and 13 of the Schedule continue the present effect of the exemption of seamen's canteens and theatres erected before 1904 from the requirement to hold a certificate for the sale of intoxicating liquor granted by a licensing court. Paragraph 14 continues the effect for passenger aircraft and vessels and railway passenger vehicles of the existing exemption from holding a certificate contained in the Customs and Excise Act. The Schedule amends the 1959 and 1962 Acts. Perhaps the provisions to which he is referring and which he cannot find in the 1959 Act are to be found in the 1962 Act. I will study carefully what the hon. Gentleman has said. If anything which I have assured him


about is inaccurate, I undertake to send him a full explanation.
I will look at the suggestion of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) on Keeling Schedules and see whether it would be for the general convenience to adopt that procedure in this case. He suggested that we might reproduce the Customs and Excise Act as amended. Since the Act has over 250 pages, I do not think that that would be a satisfactory solution. Since we are dealing with a number of provisions scattered over a number of different Acts, I am not sure whether a Keeling Schedule would greatly simplify the task of those who have to work the Act. However, I will consider the point.

Question put and agreed to.

Schedule agreed to.

Clause 6.—(ABOLITION OF PERMITS FOR SPIRITS AND TOBACCO AND CONSEQUENTIAL PROVISIONS.)

The Chairman: The next Amendment selected is No. 15. It might be convenient to take at the same time:

Amendment No. 16, Schedule 9, page 59,line 42, at end insert:
2. In section 146(3), for the words 'subsection (6) of section one hundred and eight of this Act' there shall be substituted the words 'section 6(3) of the Finance Act 1967'.

Amendment No. 17, Schedule 9, page 60,line 28, at end add:
6. In the proviso to section 253(3), for the words 'this Act as to permits for the' there shall be substituted the words 'section 6(2) and (3) of the Finance Act 1967 in connection with the sending out or other'.

Amendment No. 41, Schedule 16, page 97, line 4, column 3, at end insert:
Section 147(1) from 'and where' onwards.
Section 147(2).

Mr. Patrick Jenkin: We accept that, Sir Eric.

Mr. MacDermot: I beg to move, Amendment No. 15, in page 9, line 3 to leave out 'sections 108' and insert:
'section 108, section 147(1) from "and where" onwards, and sections 147(2),'.
It would be convenient to adopt the course which you suggest, Sir Eric.
The object of these Amendments is to make further minor Amendments to the Customs and Excise Act, 1952, which are

consequential on the abolition of spirits permits and the introduction of spirit advice notes under the Clause. We shall be considering the Clause in a moment. Therefore, perhaps all I need say now is that these are little used provisions of the law which, I regret, were overlooked when the Clause was drafted.
Amendments Nos. 15 and 41 repeal provisions in the 1952 Act which are wholly unnecessary in view of the abolition of spirits permits. Amendments Nos. 16 and 17 are purely drafting Amendments which substitute references in the Clause to references in the Act which they replace. I hope that the Committee will be satisfied with that explanation. If hon. Members want a further explanation, I shall be glad to give one.

Amendment agreed to.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Patrick Jenkin: The Clause is generally welcomed on this side of the Committee as a further simplification of the law in this sector.
Subsection (5) provides
In this Act and the Act of 1952, the expression 'spirits advice note' means a document containing such particulars as the Commissioners may direct.
I understand that some apprehensions have been expressed that this gives the Commissioners a very wide discretion in deciding what should be put in the spirits advice note. Since the object of the exercise is to bring about a simplication of the law, and since the spirits advice note is intended to be simpler than the old spirits permit, it would be helpful to the trade and certainly to the Committee if the Financial Secretary could indicate what the Commissioners and Treasury have in mind as to the contents of the spirits advice note.

Mr. MacDermot: I am grateful for the general welcome which the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has given to the Clause, and I think that I can reassure him. It is the intention of the Customs and Excise to operate this in as flexible a way as possible, and it is envisaged that ordinarily the normal commercial invoice, despatch note, or similar document, will suffice, and it will not be necessary to bring into existence a new and special


form. We hope to be able to prescribe the requirement in such a way that certainly in the vast majority of cases ordinary commercial documents will suffice.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Schedule 9.—(AMENDMENTS TO CUSTOMS AND EXCISE ACT 1952 CONSEQUEN TIAL ON SECTION 6 OF THIS ACT.)

Amendments made: No. 16, in page 59, line 42, at end insert:
2. In section 146(3), for the words 'subsection (6) of section one hundred and eight of this Act' there shall be substituted the words 'section 6(3) of the Finance Act 1967'.

No. 17, in page 60, line 28, at end add:
6. In the proviso to section 253(3), for the words ' this Act as to permits for the' there shall be substituted the words ' section 6(2) and (3) of the Finance Act 1967 in connection with the sending out or other'.—[Mr. MacDermot.]

Schedule, as amended, agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8.—(RELIEF FROM PURCHASE TAX FOR CERTAIN IMPORTED GOODS.)

Mr. Patrick Jenkin: I beg to move Amendment No. 69, in page 12, line 38, to leave out 'Treasury' and to insert 'Commissioners of Customs and Excise'.
With this Clause we move from the recondite realm of spirit licences and spirit advice notes into the rather more familiar, but none the less complex, law of Purchase Tax, and this Clause—and I give it a welcome—extends a relief which exists to cover circumstances in respect of which it may be thought the relief ought to have existed, but so far has not.
As I understand the position, there are four categories of imported goods which are relieved, or which may be relieved, from Purchase Tax. They are contained in Section 21(4) of the Purchase Tax Act, 1963, and cover such tilings as goods which ought to be imported free of Purchase Tax by some international agreement other than a commercial one, goods which are imported for the purposes of testing or comparing with British manufactured goods, goods which are imported

for purposes of research, learning, art, or sport, and goods which are intended to be re-exported.
Section 21 gives the authorities power to relieve from duty such goods on importation, but this Section must be read in conjunction with Section 11 of the Act which says:
Tax shall be charged, subject to and in accordance with the provisions of this Act, on the wholesale value of all chargeable goods imported into the United Kingdom except goods imported for a registered wholesale merchant as stock for his business or imported for a registered manufacturer as material.
That is to say, normally imports are charged with duty on importation unless they are going to be a registered trader, if I might comprise those two categories in one phrase, a registered wholesale merchant and a registered manufacturer.
That is a broad exception to the charging of duty on imports. Section 21 adds a further narrow exception relating to the four categories, and one is therefore left with the position that there is, as it were, a lacuna in the legislation which Clause is intended to fill, namely, that if the goods on importation go to a registered wholesale merchant, or a registered manufacturer they are not charged with duty, and there is no provision for relieving them subsequently from duty if they fall into one of the four categories of the limitation exceptions contained in Section 21. Normally, Purchase Tax is paid when the goods are sold or appropriated by the wholesaler, but there is no provision in these circumstances for this narrow exception of the four categories to which I have referred, and this is what the Clause does.
5.15 p.m.
This Amendment—and No. 70 which proposes to make a similar Amendment in line 43—relates to one aspect of the matter, namely, which of the Government agencies should be responsible for administering this part of the law. I recognise that this is a narrow point. Should it be the Treasury, or should it be the Commissioners of Customs and Excise? One is here referring to a division of functions between a Government Department direct and an administrative department, the Commissioners.
Under Section 21(1) of the 1963 Act it is the Treasury which has the power to direct that tax shall not be payable.


I concede at once that if it is right in Section 21 that the Treasury should be responsible for the administration of that provision, it follows that it is right in this Clause of the Bill, and I therefore make it quite clear that the Amendment is in the nature of a probe to find out why in the first place these powers of administration were accorded to the Treasury and not left to the Customs and Excise.
In Section 21 there is a division of function in that the Treasury directs whether tax is to be payable or not, but the Commissioners have power to waive a requirement. Normally the application must be made in writing before the goods have been released from Customs control. Under subsection (3) the Treasury may impose conditions, and the Commissioners may require security for the performance of the conditions. In subsection (4,a) it is the Treasury which decides which goods will qualify under international agreements, and so on. This seems an extraordinary dichotomy of responsibility in the administration of this provision of the Purchase Tax Act, and one is bound to ask why the Treasury should be landed with this administration.
Section 1(2) of the 1963 Act sets out the duties of the Commissioners. It says:
The tax shall be under the care and management of the Commissioners of Customs and Excise, who may do all such acts as may be deemed necessary and expedient for raising, collecting, receiving and accounting for the tax …
In Section 18 it is the Commissioners who give relief for exports. Under Section 19 they are responsible for avoiding a double charge. Under Section 20 it is the Commissioners who have to be satisfied that the goods are being used for charitable purposes and therefore are relieved from tax.
The Treasury comes in only when it is a question of making statutory orders. Under Section 2(3) the Treasury delimits two classes of goods as specified in that Section. Under Section 4(4) it is responsible for administering the qualifications for the registration of a trader. Under Section 15(2) it is responsible for the categories of goods to be classified as mechanically propelled vehicles. The Treasury comes in when it is subordinate legislation. The Commissioners are

responsible for the day-to-day administration of the Act.
It is only in Section 21—and this is repeated in this Clause—where the Treasury appears to come in with something in the nature of an administrative function. No doubt the Financial Secretary will say that this section raises questions of policy which should be within the control of a Government Department directly responsible to a Minister. If he gives that answer, I ask him to spell it out, because it is not clear from the provisions of the 1963 Act, or from this Clause, why this should be so. We all know that in the administration of this and other legislation the Commissioners have a wide discretion in many matters about how the Act should be administered, and that in general their discretion is subject to normal Parliamentary and other checks and balances. One is therefore bound to ask why it is felt necessary that the Commissioners should not have the duties under Section 21, and now under this Clause, and why they should have been kept for the Treasury to exercise. This is not clear, and I hope that the Financial Secretary will be able to offer the Committee an explanation of why this is so.

Mr. MacDermot: The hon. Member for Wanstead and Woodford (Mr. Patrick lenkin) has correctly stated the general purpose of the Clause, namely, to enable Section 21 claims for waiver or refund of Purchase Tax to be made in respect of goods which are cleared as untaxed stock or materials by a registered trader, as well as all cases where the Tax is paid at the time of importation.
The hon. Gentleman asks why the administrative control of this concession should lie with the Treasury rather than with the Commissioners of Customs and Excise. He correctly states that that is already the position in relation to the existing Section 21 claims, and concedes that it is logical to have the same treatment for both. In effect, he raises the question why this system was needed in the case of Section 21 claims, and why it should be perpetuated in respect of these claims.
The answer is that many of the goods on which relief from Purchase Tax may be claimed—either under this Clause or under Section 21—will also be the subject of claims for relief from import


duty under the provisions of the Import Duties Act, 1958. These claims for relief from import duty are by way of Treasury direction, given on the recommendation of the Board of Trade. In these cases there are clearly policy questions of national interest for which Departments and Ministers should be directly responsible. That is why the responsibility was put on the Treasury. It could not be done in any other way under that Act.
It is desirable that where relief from Purchase Tax is also claimed the claims should be made on the same document, because the considerations which prompt the recommendation by the Board of Trade in the duty field are also relevant in the consideration of the claim for waiver of Purchase Tax.
It is for that reason that these matters were married together at the time Section 21 was enacted, so as to make the decision lie with the Treasury, and for the same reason it is logical to do so now. I appreciate the point of the Amendment, but rather than simplifying administration it might confuse it, and in most cases it would need two separate application forms to two separate authorities instead of one, as at present.
In practice the three Departments—the Treasury, the Board of Trade and the Commissioners—work smoothly together in dealing with individual claims, and little difficulty or delay is encountered. For these reasons I must advise the Committee to reject the Amendment.

Mr. Patrick Jenkin: I am grateful to the Minister for his explanation. I can see the administrative reasons. The idea of having one form will appeal to everybody. At the same time, I must point out that the circumstances in which the Board of Trade would grant relief from import duty and the very much more limited circumstances in which the Treasury would dispense with the payment of tax under the Purchase Tax Act are entirely different. One does not necessarily follow from the other.
I am always in favour of simplification in the filling in of forms by commercial firms, and if that is what this provision achieves, although—as the Minister implied, if he did not concede it

expressly—it may not be wholly logical, in conformity with the rest of the pattern of legislation, it is something that we would all favour. In those circumstances I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 9.—(PURCHASE TAX VEHICLES ACQUIRED FOR EXPORT.)

Mr. Terence L. Higgins: I beg to move Amendment No. 64, in page 13, line 41, to leave out from ' on'to the end of line 44 and to insert:the passing of this Act'.
As I understand it, the purpose of the Clause is this: at present anyone who purchases a motor car in the United Kingdom which he then proposes to export is exempted from Purchase Tax when he initially takes delivery of the vehicle. Then, if he exports it within the time specified, he can do so without paying Purchase Tax. This is an advantageous system in encouraging the export of motor vehicles. If it were not so anyone effectively exporting a motor vehicle which he had used for a short time in this country would bear the full burden of United Kingdom Purchase Tax, and this would put us at a grave disadvantage compared with the export of motor cars from other countries. I understand that other countries make somewhat similar arrangements.
If the vehicle is retained in this country without paying Purchase Tax beyond a specified date it is taking advantage of this otherwise convenient arrangement, and we would agree that it is right that some restriction should be imposed on those who leave a vehicle in this country later than the date specified. We have no objection to mat aspect of the Clause, which is its main purpose.
What puzzles us is that the Clause does not come into operation until such day as the Commissioners may by Order determine. This will involve a Statutory Instrument subject to annulment in pursuance of a Resolution of this House. We are not clear why, instead of bringing the Clause into effect immediately, the date when it comes into operation should be determined by the Commissioners, and why it should lead to further debate in the House.
If there is a case for the Clause—and we believe there is—it should come into operation without delay. A seasonal point is involved here. The normal period is six months between the date when the vehicle is delivered and the date when it has to be exported. If the Clause came into operation immediately it would cover vehicles which will have to be exported by some time in September. This is the peak period for visitors to this country who are likely to be purchasing vehicles and taking them home. There again, there would seem to be some case for the Clause coming into operation immediately rather than after a period of delay.
I hope that in view of these considerations the Financial Secretary will see fit to accept the Amendment, or at any rate to tell the House why there should be this delay, and why we should follow a form of procedure which will clearly take up the time of the House of Commons.

Mr. MacDermot: The reason why we did not provide that the Clause should come into effect, in the ordinary way, on the passing of the Measure was that we expected that manufacturers might not wish to change the system in mid-season, and might want some time for printing new forms of instruction to the dealers concerned. These expectations were confirmed after the publication of the Bill, when we had consultations with the manufacturers. They agreed that the normal date of the passing of the Bill would have been inconvenient for them. Equally, they are not yet in a position to be able to say precisely on what date it would be convenient to move over to the new system. They will naturally want to do it as soon as possible, but they cannot give us a firm date.
This flexibility would therefore be in the trade's interests. The indications are that the date will be some time in the autumn, at the end of the summer season. This was originally for the trade's convenience, and its representatives have confirmed that this flexibility would assist them. We could fix the date now, but, if it will not be convenient to anyone, it seems unnecessarily arbitrary.

5.30 p.m.

Sir Gerald Nabarro: I must quarrel with the Financial Secretary. People who buy motor cars here free of Purchase Tax to take home

as British exports do so during the peak period of tourism, between June and September. The forms which the hon. and learned Gentleman mentioned are a relatively easy administrative change. As the Bill will probably reach the Statute Book, as is usual for Finance Bills, in the second half of July, surely in the seven weeks between now, 6th June, and then there is ample time to reprint a few forms to enable manufacturers and salesmen to take the fullest possible advantage of the spate of tourists in August, September and early October.
More visitors to Britain, notably from North America, are expected this year than ever before. This sale of motor cars free of Purchase Tax is very important for our exports. Between now and Report the Financial Secretary should reconsider this. I am closely in touch with the trade and have heard no suggestion by manufacturers or by retailers and distributors that they could not cope with this relatively minor change in six or eight weeks.

Mr. MacDermot: The hon. Gentleman says that he is in touch with the trade. Has he received any representations that they would like an earlier, and if so what, firm date in the Bill? If he has that information, I would gladly consider it between now and Report.

Sir G. Nabarro: I have no such firm information, because I have no reason to believe that the Treasury would not concede this relatively minor, non-party political point if these views were put fairly and squarely. Six weeks is ample time to make a change of this kind. I do not know whether the hon. and learned Gentleman heard the Answers given to Question No. 1 today and my supplementary question, but I said that the trade say that they are facing the worst slump since 1929.
I should have thought, therefore, that the Treasury should put pressure on the trade to make this minor change while the Bill is going through this House and another place. By the time it reaches the Statute Book the new system should be ready, that is, in the third week of July. If that results in more sales, this House would have made a tiny contribution to the promotion of exports.

Mr. Higgins: There is some attraction in the Financial Secretary's argument, but


so that we can consider it between now and Report, would he clarify one point? He mentioned a form which would have to be altered, but the Clause imposes penalties on those who do not abide by the terms imposed by the Commissioners and I am not sure how it would need to be altered.

Mr. MacDermot: Under the existing law, the liability if a vehicle were not exported in the required time would be the manufacturer's. To protect himself, he secures written undertakings from the purchaser, which is unpopular with the purchaser, and this unpopularity led to this change in the law. What would be required now, presumably, is some document explaining these provisions to the purchaser, because the liability will now be his or that of any subsequent owner if the car is not exported in the required time.
The manufacturer will have to ensure, first, that the dealers understand the change and can explain it to the purchasers, as there would otherwise be a different dissatisfaction. The period which the manufacturers require to get out these instructions and be satisfied that the dealers understand the new system is the reason for the delay.
I share the reaction of the hon. Member for Worcestershire, South (Sir G. Nabarro) that it is surprising that they should need this time, and I will certainly have inquiries made again with the Society of Motor Manufacturers to see whether they could not introduce it as soon as the Bill is passed. It would be in their interests. If that is so, I will bring forward the necessary Amendments on Report. We have discussed this with the Society, which, with the greatest interest of all in the change being effected as soon as possible, welcomes the Bill's flexibility.

Mr. Higgins: In the light of the hon. and learned Gentleman's remarks, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Higgins: I am a little puzzled by a phrase in subsection (2), which says:
Where a vehicle in respect of which tax has been remitted under the said section 23(1)

has been exported but is subsequently brought back into the United Kingdom, then, without prejudice to subsection (1) of this section, the vehicle shall not when so brought back be treated for the purposes of section 11 of the said Act of 1963 as imported into the United Kingdom.
Surely it would therefore be possible for someone who had paid Purchase Tax to export a vehicle and then bring it back without being subject to Section 11 of the 1963 Act, which imposes tax. How can it be done without prejudice to subsection (1)? I may have misunderstood, but I should be grateful for clarification.

Mr. MacDermot: The point is complicated. The hon. Gentleman nearly got there but missed one point. This subsection closes a potential loophole, the possibility that someone could buy a car, export it by the given date without paying Purchase Tax and re-import it shortly after for permanent retention here without paying the full tax.
The possible loophole, without subsection (2), is that, on bringing it back, he would be liable to Purchase Tax only on the second-hand value under Section 11. The subsection makes it clear that, if an untaxed "Section 23" car is brought back in these circumstances, it will be deemed not to have been imported for tax charge purposes. He then remains with his original liability to pay the new value of the car.

Dr. Reginald Bennett: This matter is of particular interest to places like the Channel Islands. Are we to understand that on trans-shipment from the Channel Islands to this country a car on which the full Purchase Tax was not charged initially will now be liable to the full charge and not to a proportionate amount of its second-hand value, even if it comes from the Channel Islands?

Mr. MacDermot: I do not think there is any difference between a car coming from the Channel Islands or from any other place outside the scope of Purchase Tax for this purpose. To follow the hon. Gentleman's example, if somebody had a Section 23 car and went on a short visit to the Channel Islands and returned to this country before exporting the car, I do not think that he would incur the Purchase Tax liability in those circumstances. However, somebody resident in


this country who buys a car cannot avoid his proper liability to Purchase Tax by paying a visit to the Channel Islands.

Dr. Bennett: I raise this point because there is a large business in self-drive hire cars in the Channel Islands. After a year or so, this type of car then being secondhand the vehicles are brought back to this country. I understand that a proportion of the Purchase Tax will have to be paid on the then value of those vehicles. This new provision may put a heavy burden on the owners of such vehicles and have a severe effect on this traffic.

Mr. MacDermot: In such a case, I do not believe that there would be any difficulty because the vehicles would have been away for longer than the period with which we are concerned. They would be genuine second-hand cars when brought back to this country. However, to clear up the point I will look into the matter.

Mr. John Smith: This provision shifts the burden from the manufacturer to the owner. While this is unexceptionable in respect of the first owner, I am wondering how the second and subsequent owners will be protected. The provision states that the tax will be payable
… by any other person in whose possession the vehicle is found in the United Kingdom …
and goes on to deal with forfeiture. Cars on which Purchase Tax has not been paid and which are not exported represent such a small proportion of the total number of vehicles that I suggest that no purchaser of a secondhand car will bother to inquire about this and may find himself in possession of a vehicle on which he must either pay the tax due or forfeit the car. The Clause goes on to say
… unless, or except to the extent that, the Commissioners see fit to waive payment of the whole or part thereof …
In what circumstances would the Commissioners waive payment?

Mr. MacDermot: It is essential that we retain this protection or there could be widespread evasion. There would be a large loophole in the administration of the Purchase Tax on motor cars without this provision.
I imagine that the kind of case which the hon. Gentleman has in mind would be the sort of circumstance which the

Board would take into account in deciding whether or not to waive payment. If somebody had been the innocent victim of a fraud—had made proper inquiries but, by skilful means, it had been concealed from him that this was a Section 23 car—then that might be considered by the Board, in the exercise of its discretion, to be a proper case in which to waive the tax. However, we must preserve for the Board its powers to follow through the liability of the purchaser of a Section 23 car.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 10 ordered to stand part of the Bill.

Clause 11.—(VEHICLES EXCISE DUTY: INCREASED PENALTIES FOR EVASION, AND EFFECT OF TRANSFERRING VEHICLE WITHOUT LICENCE.)

5.45 p.m.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Stephen Swingler): I beg to move, Amendment No. 45, in page 14, line 19, at the end to insert:
This subsection shall not have effect in relation to offences committed before the passing of this Act.

The Chairman: The Amendment to the Amendment standing in the name of the hon. Member for West Ham, North (Mr. Arthur Lewis), in line 2, to leave out ' passing of this Act' and to insert '11th April 1967', is not selected, but the point can be raised in discussing the Amendment.

Mr. Swingler: It was not intended, when this provision was brought forward, that there should be any element of retrospection in the increased penalties for the evasion of vehicle licence duty. This is clear from Clause 12(8). Inadvertently, however, a corresponding provision was omitted from Clause 11. This Amendment corrects that omission and makes it clear that the increased penalties provided for there are to come into effect only on the passing of the Measure.

Mr. Edward M. Taylor: This is an acceptable Amendment because it would be intolerable if there were an element of retrospection in such a substantial increase in the tax.

Mr. Arthur Lewis: I am not in favour of retrospection, but I do not see why these dodgers—those who have been getting away with it for years—should not be made to pay. I am not concerned with those who forget, perhaps for two or three weeks, to renew their vehicle licence duty. I am concerned with those who, having received numerous notifications from the police, licensing authorities and others, continue to get away with it.
As the Chancellor notified these people on 11th April that they must get their vehicles licensed, I do not see why they should then be given two months, then another two months or six weeks, come the passing of this Measure, before being brought to book. Having told them on 11th April that the law is to be tightened up, and having been given notice for years to abide by the law, I do not see why they should be given a further period, until 11th May, and then another period, until 6th June, extending into July, before knowing that we may take action.
There is no certainty that the increased penalties will be enforced. I do not see why these people, who have been flouting the law for years, should not be obliged to pay up—not retrospectively, but at least to pay the increased penalties from the date on which the Chancellor gave notice of them. I suggest, therefore, that this provision should apply from Budget day; and I trust that, between now and Report, this matter will be looked into.
The Greater London Council—and no doubt other licensing authorities—has had thousands of notifications since Budget day about people who have been merrily committing this offence. Indeed, they are still committing it. I will have more to say about this later. The licensing officer of the G.L.C. has mentioned that 14,000 people come into this category. They should be made to pay up from the time when the Chancellor notified them of the increased penalties.

Mr. Swingler: I appreciate what has been said by the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor). I also appreciate the enthusiasm of my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis) for stronger action against these offenders, and this provision has been tabled in

response to the sort of representations he has made. My hon. Friend conveys the impression that no enforcement action has been taken, but in the Greater London Area alone more than 7,000 prosecutions were initiated in 1966 by the G.L.C. against such offenders, and nearly 25,000 offenders were dealt with by the system of mitigated penalties. Those being the figures for the Greater London area alone, it cannot be said that there is a lack of activity in the enforcement of the law. We are doing all we can to get a higher degree, of enforcement. This Clause and the Clause following represent the Government's response to representations made by my hon. Friend and others in favour of more stringent penalties.
I do not think that my hon. Friend would agree in principle that this House should take action to raise the penalties for offences after the offences have been committed. The case for the collection of taxes announced by my right hon. Friend on Budget day is quite a different matter. In all other respects, this House should seek to avoid retrospection. Only when Parliament, having gone through the necessary stages of legislation, has approved increased penalties should those penalties be brought into force. That is why, as provision is already made in subsection (8) of Clause 12, we wish to make this Amendment to this Clause.

Mr. Arthur Lewis: My hon. Friend the Parliamentary Secretary got on to the wider discussion of increased penalties as a whole. I will deal later with the question of enforcement and disabuse him of some of his ideas.
This is not really a matter of retrospection but of seeking to carry out law which has been evaded by many year after year. These offenders had numerous warnings before April, and my right hon. Friend the Chancellor of the Exchequer warned them again on Budget day. That being so, there is not much wrong in suggesting that they should pay their just dues dated back to Budget day. That is all I suggest. I do not suggest that we go back to a date before my right hon. Friend's announcement, or suggest that they should be charged with any offences in retrospect.
It must be remembered that these people will have committed this offence


last April or May, or since Budget day, and are therefore now in arrears of their taxation. I know of no other tax or duty—Income Tax or Customs and Excise—in respect of which the Chancellor of the Exchequer will say to a man who has dodged payment for three or four years, "We will let you off your arrears, but will give you notice on Budget day that we will catch up with you. But we will not implement it then. We will put down an Amendment to the Finance Bill so that the penalty can operate when the Finance Bill becomes law, which will probably be in another six weeks' time." As it is, these people are getting away with it with the support, connivance and aid of the Chancellor of the Exchequer for another six or eight weeks.

Mr. Swingler: It is just not true for my hon. Friend to say that these people are getting away with it. Parliament has laid down in previous Acts penalties for the offence of keeping or using an unlicensed vehicle. Those penalties are embodied in the present law, and those who offend against the law are liable to those penalties on conviction. My hon. Friend is asking that Parliament should state in the Bill that on 11th April last the Chancellor of the Exchequer declared the state of the law, instead of Parliament so declaring it in the course of passing the Bill.
We are here dealing with something entirely different from the provision which Parliament has made for the instant application of tax changes. We are not dealing here with tax changes but with penalties for offences. It would be an exceedingly dangerous precedent if Parliament were to take the step of writing into the Bill that it was possible that what a Minister declared was the state of the law on a certain date superseded the state of the law as laid down by previous Acts of Parliament.
The simple fact is that this Amendment provides something we normally accept; namely, that changes in the law and in penalties for offences should be brought into effect from the date on which a Bill receives the Royal Assent after having been passed by Parliament.

Amendment agreed to.

Question proposed. That the Clause, as amended, stand part of the Bill.

Mr. Edward M. Taylor: As the Minister has said, this Clause very substantially increases the penalties that can be levied on those who keep or use vehicles without the tax having been paid. Up to now we have had the very substantial penalty of a fine of £20 or three times the duty leviable, and this is increased to £50 or five times the duty that can be levied.
Evasion is a serious matter, and the hon. Member for West Ham, North (Mr. Arthur Lewis) and several of my hon. Friends have in the past shown that evasion is growing. It is obvious that steps must be taken to thwart deliberate evasion. In fairness to law-abiding people who pay their tax fairly and promptly, the Government have a duty to act whenever there is widespread evasion. We all know that if everyone paid their tax at the right time and fully the levels of taxation, which are extremely high, could be lower.
Our principal concern with this Clause, apart from the general point, is that innocent but forgetful people could suffer these savage penalties in the same way as those who have been deliberately evading the tax. The Government have a clear duty to notify people who might be forgetful, who might get lost or confused and enmeshed in the web of red tape which seems to be growing every day, certainly under this Government, of the risk of incurring these penalties.
It is becoming more and more difficult nowadays to avoid coming into conflict with the law, and in those circumstances the Government have a plain obligation to take what steps they can to protect innocent people who might otherwise, by forgetfulness, come into contact with the law. We ask the Government to do something to assist motorists, and we think it appropriate that that assistance should be given now, particularly in view of the Government's record in taxation of the motorist over the last two or three years.
Motorists are not a small or unique section of the community. Almost one family in two has a car. There are about 10 million cars on the road. The Government have acted very harshly towards the motorist—indeed, some people consider that they have persecuted him. Since the present Administration came into


power they have increased the Purchase Tax on cars and the duty on petrol. The burden on the motorist has increased by about 30 per cent.—an extra £280 million in a full year. What have we in return? We have a reduction of £55 million in the road building programme in 1965 and a further cut of £14 million in 1966.
6.0 p.m.
In these circumstances, I hope that the Minister will be able to offer some consolation, some help and assistance to innocent people who might be caught by this very substantial Excise penalty. It is all very well to suggest a general statement, but I will put three specific suggestions forward for overcoming the problem. First, there should be a simple reminder as we have for driving licences. This surely would not be an insuperable difficulty. It could be prepared by computer. Many people, perhaps our friends and acquaintances, have forgotten to pay their vehicle tax without intending not to pay it. If we are to have substantial penalties as provided by this Bill, the Government are under an obligation to advise people about when the tax is due.
The second thing which could be done concerns the problem in many families where there are two cars. They have to remember no fewer than five dates, the two vehicle test dates, two licence dates, and the date for paying the insurance. This is a burden in this hectic age when so many things have to be remember. Would it be possible for two-car families to pay their licence duty on the same date?
The third proposal is to provide arrangements for licences to be paid over three-year periods. Clearly there would be no financial advantage to the motorist if he had to pay three times the annual fee at one time, but would it be possible to make a reduction for those who pay for the licence over that period?
While we fully accept that further steps have to be taken to prevent evasion and there may be the difficulty of enforcement, perhaps the additional funds obtained would help. Although we support the Government in any general measure to prevent this kind of evasion, the Government are under a clear obligation to set out how they intend to assist forget-

ful people who are not aware of the date when the payment becomes due.

Mr. Joel Barnett: I should like to know on what basis it was decided to fix this particular penalty and why it was decided that the former penalty was too low.
I put a Question to the Minister on this point yesterday. One is accustomed to get Answers from Ministers which, to say the least, are a little discourteous, but the Answer I got I thought particularly irrelevant. I asked the Minister to
give the number of successful prosecutions for evasion of vehicle licence duty in each of the last 10 years; in how many cases the maximum penalty has been charged under the Vehicles (Excise) Act, 1962";
and for an analysis of the information
indicating the percentage the figures represent of vehicles registered in each case.
I should have thought the Answer would be relevant to deciding what the penalty should be. If it happened that previously under the penalties imposed we were generally charging very much less than the maximum, one would wonder if previously we could have charged much higher or if there was an argument for not charging so much. We might have found that there was some survey the Minister had undertaken which showed that we needed the higher penalty, but the Answer by the Joint Parliamentary Secretary, my hon. Friend the Member for Aberavon (Mr. John Morris), was:
I regret the information is not available." —[OFFICIAL REPORT, 5th June, 1967; Vol. 747, c. 133.]
I find that a little difficult to understand. Perhaps all the information may not be available, although I am rather surprised if that is the case, but at least some of the information should be available. Otherwise, how on earth was it decided that past penalties were inadequate? Is it once again the fact that we are given Answers which show that Ministers are not bothering to answer Questions? This is a shocking state of affairs. If the Minister has the information he should give it in answer to the Question. If he did not have the information, on what basis was the decision taken?

Sir G. Nabarro: I want to intervene for only a couple of moments and to say


two things. Both Front Bench speakers have talked about keeping and using a motor vehicle. I hope they will clarify that phrase before this short debate finishes. There is no offence whatever in keeping a motor vehicle unlicensed so long as one does not put it on the public road. I deliberately forget to relicence a motor car—

Mr. James Dempsey: Shame.

Sir G. Nabarro: It is not shame at all. I do not suppose the hon. Member possesses a motor car anyway, or a licence to drive one.

Mr. Dempsey: Wrong again.

Sir G. Nabarro: I deliberately forget to relicence a vehicle which I do not propose to use in the ensuing three, four or six months. I hope the Parliamentary Secretary will qualify what he said. There is no offence at all so long as the unlicensed vehicle is not put on the road.

Mr. Swingler: The hon. Member will realise that in Clause 11 we are talking about amendments to the Vehicles (Excise) Act, 1962. I do not wish to go through all the provisions laid down in the 1962 Act but to take it as read, including the point mentioned by the hon. Member.

Sir G. Nabarro: I accept that explanation, but it is very dangerous to use the word "keep".

Mr. Swingler: I said, "keep on the road".

Sir G. Nabarro: That is a different matter.
I turn to my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor). Because he is speaking with the authority of a Front Bench spokesman—on which I warmly congratulate him—he is presumably expounding Tory policy, but he did not take me with him in one or two of the things he said. He twice used the term, "there is a clear obligation on the licensing authority to inform a motorist that his vehicle is due for relicensing ". I will have no part in wet nursing motorists. They ought to be able to know for themselves, with a simple record system in their own homes, when their vehicles are due for re-licensing.

Mr. Iain Macleod: How many does my hon. Friend have?

Sir G. Nabarro: I may have a diary like my right hon. Friend has. Unfortunately, due to the sloppy administration in earlier years, my cars, NAB.1 to NAB.8, inclusive, are licensed on different dates. I insure them on the same date—All Fools Day, to remind me of the foolish provisions previous Administrations made in taxing my cars so heavily.
That is all on one side. There is no clear obligation on the authorities to give warning that vehicles are due for re-licensing. I see the Assistant Postmaster-General present in the Chamber. I invite him to sit on the Treasury Bench.

Mr. Frederic Harris: Does my hon Friend feel the same way about reminders for dog licences, wireless licences and so on?

Sir G. Nabarro: They are all redundant and unnecessary. It is all a needless public expenditure. That is why taxation is so high. If hon. Members sit here to raise taxation year by year, they will follow these policies of calling for more and more public administration every year and of inviting authorities to remind motorists to renew their licences, as if motorists are not normal, intelligent people. If I run over a "halt" sign due to a motoring indiscretion, I expect to be fined. If I run over the period of my licence, I would expect to be fined. The two cases are exactly analogous.
Therefore, with the deepest regret and with due humility, I castigate my hon. Friend the Member for Cathcart and invite him to withdraw the words "a clear obligation upon the authorities to notify". If any authority sends me a notification, it will get a very hot public retort to the effect that it is wasting public funds and putting up my already intolerably high level of direct and indirect taxation.

Mr. Arthur Lewis: If my hon. Friend the Member for Heywood and Royton (Mr. Barnett) would look at a Notice of Motion which I had on the Order Paper a few months ago, he would find some of the information, which regrettably, the Ministry of Transport has omitted (to give him, in so far as it applies to the area of the Greater London Council. Equally, if my hon. Friend contacted the Chief


Licensing Officer of the G.L.C. he would be astounded at the figures which would be supplied to him. I am surprised that the Ministry of Transport cannot obtain these figures for my hon. Friend. However, that is the Ministry of Transport.
I hope that the hon. Member for Worcestershire, South (Sir G. Nabarro) can settle his problem with his own Front Bench. I subscribe to the official Tory Party policy. I believe that: there are some people who genuinely forget. They could, and should, be reminded, because the cost would be negligible. Printed postcards could be sent out and returned with the cash for the licence, the postcard saying:
Dear Sir Gerald Nabarro,
Your vehicle licence will expire on such and such a day. If you have it on the road or in use, you should return the enclosed form with you fee, otherwise you will be committing an offence and will be liable to a fine of £x.
That would be kind and helpful and would save the hon. Gentleman from being severely fined. Under the present position, the hon. Gentleman gets a little notification, because he gets the fortnight's leeway under the Act.
However, I am not concerned with the forgetful people. I am concerned with the thousands of people—not only ordinary motorists, but business people—who are deliberately carrying on a wonderful additional business in deliberately evading this tax. Not only do they deliberately evade—it is not a question of forgetfumess—but they have some marvellous dodges. They put notices on their windscreens—this proves that they cannot forget—saying, "Tax applied for"; "Tax pending"; "Tax in post". Those notices are on the windscreens for 12, 18, or 24 months. The sun tarnishes them. They fade. They fall down, but the motorists stick them back on again.
These motorists have now learned a newer dodge. They work their football pools in with it. They send off their money for the pools. They then stick the postal order counterfoils from the orders they have sent to the pools on to their windscreens, making out to the G.L.C. or other licensing authority, "Tax applied for". They hope the postal order counterfoil will convince the police that it is in the post. It is not in the post. It is in Littlewood's Football Pools.
6.15 p.m.
This is happening. I dispute what my hon. Friend the Joint Parliamentary Secretary said, because I know—this is not hearsay—and can quote the numbers of commercial and private vehicles which have been reported at intervals of a month over three years. I can take my hon. Friend tomorrow morning or any day of the week and show him a commercial vehicle which is untaxed. The firm concerned has three vehicles, all untaxed. The firm turns over thousands of pounds per week and makes hundreds of pounds per week profit. Not only do these people deliberately not pay the tax. They say that they will not pay it.
This leads me on to the question of the fine. It is true that the present penalty is not severe enough, because it is a profitable proposition to evade payment. When my hon. Friend the Member for Heywood and Royton gets the G.L.C. figures, which he can learn either from my Motion or from the Chief Licensing Officer of the G.L.C, he will find that the mitigated penalty scheme is mostly in use. This is done for two reasons, the first of which is that this offence is now so prevalent that the police have almost given up reporting the matter. I could quote police stations and policemen who have said before witnesses that there were so many of these cases which they were reporting day in and day out that they have now given up reporting them because there are too many of them.
Not long ago I went to the Caledonian Road Police Station, at Islington, because I found 25 unlicensed vehicles in 100 yards of the Caledonian Road. I went into the police station and said, "Will you go and look at these vehicles?". I did not divulge who I was. The policeman said, "Why?". I said, "There are 25 unlicensed vehicles in this one stretch of road". The policeman said, "Do not worry about that. Take a five-minute walk round here and you will find 3,000 unlicensed vehicles". I said, "I thought that your job was to enforce the law". He said, "No. We have given that up, because we have been doing nothing else". I have sent in reports of unlicensed vehicles. I have had letters from all over the country telling the same story of how the police or the licensing authority has been notified, but no action has been taken.
I say "No action has been taken", because the vehicles are still running around to this day without licences. If action were taken, I would assume that there would be either the mitigated penalty or the fine and then the licence would be put on. Sometimes motorists pay the mitigated penalty or the fine, but do not take out the licence. They drive up to the court; they pay their fine or mitigated penalty and off they go; they do not take out the licence.

Mr. R. Gresham Cooke: Can the hon. Gentleman confirm from his interesting investigations that a large proportion of these people not only do not pay their licence fees, but run about uninsured as well?

Mr. Lewis: I was coming to that point next.
The important question is: why is this done? It is done for two or three reasons. One is the insurance. However, before I get on to that question, an even more serious aspect is that there are now three-yearly vehicle tests. Before a man can get his vehicle Excise licence, he has to supply his insurance certificate and, if the vehicle is three years or more old, a test certificate as well. Many of these vehicles are not fit to pass the three-year test. What do these people do? They say to themselves, "We will not be able to get a three-year test certificate, so we will not trouble to apply for the Road Fund licence. Also, as we do not now intend to apply for that, we will not trouble to take out insurance, either".
A police superintendent told me that he witnessed the knocking down of an old lady on a pedestrian crossing. It was a hit-and-run motorist, but he thought to himself that it would be all right as he had got the number of the vehicle and could trace it, with all the paraphernalia of investigation which the police have. But after six months they gave up. There was no record of that vehicle having been licensed at all during the past seven years. But it was on the road. There had been a series of changes of ownership, but at no time had the vehicle been licensed or new ownership notified.
This is the other dodge, not only dodging the roadworthiness test and insurance but dodging registration of change of

ownership. This is very serious. I challenge my hon. Friend the Parliamentary Secretary to tell me what his Department does about enforcement. It has its occasional spot road checks, but what else does it do to ensure that people license their vehicles and get roadworthiness certificates? In fact, nothing whatever is done. His Department brings in the legislation requiring the three-year test, but, if someone does not apply for the Road Fund licence and he does not get caught in a road check, the Department can do nothing to ensure that vehicles are roadworthy and insured.
I saw one of these road checks in Wood Green High Road the other day. As I was driving along, I saw a big notice in the road saying, "Halt—Road Check Ahead". I said to my wife, who was sitting next to me, "Look at all these people turning off here", and then I realised that they had seen the notice. Anyway, I got to the check point and, fortunately, they did not check me—they might have found something wrong, perhaps—and, after I had gone through, I stopped and walked back. I was told that it was a Ministry of Transport check, and, when I asked why I had not been checked, the man said that they let through so many and checked so many. When I asked what about all those people further along who were turning off and going round the back, he said, "We cannot do anything about that".
It is a serious offence not only to dodge the taxation, but, as the hon. Member for Twickenham (Mr. Gresham Cooke) said, to dodge the insurance. In the case I mentioned, the old lady's next-of-kin got no compensation because the vehicle was untraceable. It is time that the Ministry of Transport, the Treasury and all the Departments concerned got down to the job of enforcement. There is no point in having a fine of £1, £10, or even £50 or £100 if it is not enforced. It is not being enforced at the moment.
If my hon. Friend assures me that it is being enforced, will he refer to the list of vehicles which I have supplied and which others have supplied to him since the hon. Member for Croydon, Northwest (Mr. Frederic Harris) and I have been campaigning on this matter? How many of those vehicles reported as unlicensed are still on the roads and unlicensed three, four or five months afterwards? I can tell the Committee myself.


In my bag outside I have a list of vehicles—in some instances with the names and addresses of the owners, sometimes the names and addresses of firms—which have been notified as unlicensed for months and months and which are still on the roads neither licensed nor road tested. I do not know about insurance, but my guess is that there is no insurance either.

Sir Harmar Nicholls: Is the hon. Gentleman suggesting that these things have been brought to the attention of the police and that nothing has been done? A member of my family forgot to relicense her car—only a day or two late—and in one county had to pay two guineas. Then, driving on to the next county, she reported it, to be on the safe side, and was charged another two guineas. There is no Law Officer on the Front Bench at the moment, but I should like to know whether we can get one of those two-guinea penalties back.

Mr. Lewis: I was not aware of that case; probably the hon. Gentleman's relative does not live in the London area. It certainly was not in my batch of notifications. All I know is that there are numbers of vehicles which have been reported as unlicensed, sometimes for as long as two or three years, and they are still unlicensed, either before or after any payment of two guineas. Many of them still have their little notices with "Tax applied for" or "Tax in the post" on them, and some with the new dodge of sticking behind the windscreen the Little-woods Pools postal order counterfoil.
The hon. Member for Glasgow, Cath-cart (Mr. Edward M. Taylor) made a good point about notification, but something more should be done about enforcement. There could be a simple system. The traffic warden, the policeman or other person in authority could have power to stick on an unlicensed car when it is found in the street a little notice saying that the vehicle was untaxed, the matter had been reported to the nearest police station and that, unless within a period of one or two weeks the owner produced his licence, he would automatically, as with a parking offence, have to pay a fine.
The other Saturday, I spent half an hour driving round the West End trying to find a parking meter. I could not find a place,

but I saw dozens of vehicles parked there without licences which should not have been on the road at all. If I had overstayed my time at the parking meter, or if I had parked in a yellow band area, the traffic warden would automatically have stuck a notice on my windscreen and I should have had to pay or go to court.

Sir G. Nabarro: In 1966, the loss of revenue due to evasion of television and radio licences combined was estimated by the Post Office at £10 million. There is approximately the same number of television licences in Britain as of motor car licences. The standard motor car licence fee is £17 10s. whereas the television licence fee is £5, a ratio of 5 to 2. Will the hon. Gentleman now confirm that the loss in the matter which we are now discussing is as 5 is to 2 of £10 million. that is, £25 million a year?

Mr. Lewis: I do not disagree with the hon. Gentleman, except that I think he may have underestimated. Commercial vehicle operators are saving not £17 10s. per vehicle, but £115 or £175.

Sir G. Nabarro: Sir G. Nabarro rose—

Mr. Lewis: If the hon. Gentleman wants to debate this, I remind him of what happens to some very large vehicles. What about the 5-ton and 10-ton sand and gravel lorries which have been discarded by the reputable sand and gravel and muck-carrying firms because they are no longer in a roadworthy condition? Numbers of these lorries have been bought up by jobbers, who take them on the roads and earn £5 or £10 a load, 10 or 15 loads per job. In almost every case, that is tax free. One of these men boasted to me that he was making £105 a week tax free and that he had two of these lorries that he had never taxed and never insured. That is even worse than what has already been mentioned.
6.30 p.m.
I therefore hope that we can get a system to see that enforcement is carried out. There are a hundred and one different ways in which it can be done without damage or detriment to the legitimate road user and the man who forgets. No one would object to a slip being stuck on his car if he had forgotten. I am sure that I and the hon. Member would not object if a slip was put on the windscreen


of our car saying, "It has been observed that your vehicle is untaxed. Please go to a police station and present your tax certificate to show that the vehicle is taxed." No one would worry about that, but it would help to catch the deliberate evaders.
I believe that the hon. Gentleman's figure is an under-estimate, but I am sure that the Treasury would be only too pleased to get £25 million if he is right with his figures.

Mr. Frederic Harris: Like the hon. Member for West Ham, North (Mr. Arthur Lewis), I have battled for at least 2½ years with various Government Departments to try to do something about this appalling tax evasion. I remember considerable efforts with the Ministry of Housing and Local Government, the Ministry of Transport and, in particular, the Treasury.
I was infuriated when, in the 1965 Budget, the Chancellor of the Exchequer decided to increase the licence fee from £15 to £17 10s., knowing only too well that perhaps 25 per cent. or 50 per cent. of the increase could have been saved if the proper tax was being paid by those who were dodging it. In other words, those properly paying the tax were paying the penalty for those who were not.
The Financial Secretary may recall the considerable correspondence we exchanged on that and particularly the last letter he wrote to me, in which he took the view at that time that unlicensed vehicles on the road possibly numbered about one in 100. I hope that he will not misunderstand me if I say that I thought that he was rather too kind in the way that he put that. He did not seem to have a great deal of concern about one out of 100 motorists appearing to dodge that tax. My figures are much greater than his. I based them on all that I could find out of what was happening in the G.L.C. area, because Croydon now comes within the G.L.C. During 1965, 80,000 unlicensed vehicles were reported. In 1966, this increased to at least 95,000 and lately the figure has been running at 15,000 a month, a tremendous amount.
I then tried to find out what was happening about these cases. About

16 per cent. were recorded as having complied with the law in due course. But 84 per cent.—about five-sixths—did not. One then comes to the mitigating penalties. Of the 84 per cent. to which I have referred, about 35 per cent. took out a licence in due course, some of them having at the same time paid the mitigating penalties to which my hon. Friend referred, but not all of them did so by any means.
Only in about 10 per cent. of the cases throughout the year were proceedings taken. About 55 per cent. at any time were considered to be under investigation, which was a most unsatisfactory situation. The Ministers appreciate that the staff of the G.L.C. will openly admit that they were so bombarded in this matter, as have been the police and everybody else, that they could not cope with the situation.
I do not go along with the hon. Member for West Ham, North on the amount of tax that has been avoided. I do not know where those calculations come from. The best calculations I could find were that between £5 and £7 million a year is being lost through tax evasion of this kind. That is still a very substantial figure. It is particularly annoying when I remember the Minister of Transport having to tell us that the road programme had to be cut. That seemed very unfair, because it was being cut by about twice as much as the cost of the tax avoidance that appeared to be going on, at a time when road deaths are at the highest level and we want the best roads we can have.
Again, on the G.L.C. figures, and taking its figures alone, in 1966 about 80,000 car owners were apparently travelling on roads in the Greater London area without vehicle excise licences. On the basis of the, I think, more accurate figure of 9 million car users at the moment, one can assume that between 400,000 and 500,000—between 4 and 5 per cent.—of our road-users are not paying their licences, which is fantastic. I understand that in some of the suburban areas the position is even worse than it is in London. That is a very different story to the 1 per cent. view which the Financial Secretary took just over two years ago.
As has already been said, there are two types of offenders. First, there is the honest person who forgets, and in that


category I should like to include even Members of Parliament. I remember when discussion on this question was at its height I often used to wander into the Members' yard and find many cars belonging to Members of Parliament who had also forgotten to license them.
Then there are the deliberately dishonest people, the people about whom we are really concerned, such as those to whom the hon. Member for West Ham, North has referred. I agree with my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor) about reminders. I shall try to be kind to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) when I say that perhaps he is fortunate to have a secretary who reminds him when to have his cars licensed.

Mr. Iain Macleod: He has one for each car.

Mr. Harris: I repeat what I said to my hon. Friend in an intervention. It does not seem common sense to me, when we are on the receiving end of reminders for driving licences, licences for wirelesses in our cars, dog licences and television licences, that we cannot have a simple system for car licences.

Sir G. Nabarro: Would my hon. Friend apply at once for the post of assistant to Professor Parkinson?

Mr. Harris: I am not particularly interested in that.

Sir G. Nabarro: I hope that my hon. Friend will not dismiss this lightly. This is a classical case of the Parkinson theory, that because one Department of State starts reminders every Department of State must have reminders. I do not want to be wet-nursed by the Post Office, the licensing authorities, or anybody else. I shall "take the rap" if I forget. That is enough.

Mr. Harris: My hon. Friend may be very fortunate in that his memory has not slipped yet. When he gets older he will find that his memory is not so good as perhaps it was 10 years ago.
Many of us like to have a reminder, and I am sure that that is also true of the members of the public. People do not want to be deliberately dishonest in this matter. Many of them forget and, as

my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) said, it is then the honest person who pays the penalty—in some cases more than once. That seems to be very unfair. The police should be issued with stick-on labels for windscreens asking the owner to produce evidence that the car is licensed within seven days and saying that if he does not he will face the penalty. This is still only partially done at present and there could be considerable improvement in the system.
Why are so many cars on the roads unlicensed? As the hon. Gentleman said, one can go into any car park or along any road and always find cars unlicensed. Since we started this campaign—which just happened; it was not deliberate—I have had a great deal of correspondence. People get very annoyed to feel that so many people, even next-door neighbours, are getting away with it and not paying their licences. That attitude is understandable.
One may ask why the police do not do more. My experience is that they are very, very helpful, but are completely overburdened and very disheartened about this matter. They report many cases to the authorities which do not get any further and they see people getting away with it. One can understand their being disheartened.
Why are local authorities permitted to work separate mitigated penalty schemes? Why should they not work on the same basis instead of on different bases? The present system does not seem sensible. The Government spend enough money on publicity already. Why do they not use their full publicity facilities to remind people about car licences?
I repeat a suggestion which I have made before. The Minister of Transport should from time to time try a spot check in a particular town so that she can understand the extent of the problem. In Croydon, the police have been advising the G.L.C. of about 300 cases a month. That is a very large number, but the police do not assume that it represents all the cases, because they have a hard task to get round the whole town.
Another major point is that those who have not got road licences almost invariably are the sort of persons who have no insurance cover, either. We must know


of many tragic cases who have been on the receiving end of a car accident involving people without insurance cover. This is a very disturbing situation.
I am in favour of what is in the Clause—and I am not a lover of Finance Bills, having been involved in 20 or more—because I feel that I have achieved something. But I have tried to calculate the administrative costs of handling the present vehicle Excise licence system. I estimate that it must be at least £2 million a year. I still pose the same question: why do not the Government think in terms of some simplification of the whole system? Simplification is needed in taxation generally.
I know that I shall probably be "shot down in flames" for suggesting it, but why not put 6d. a gallon on the petrol tax and abolish the licence? An exception could be made for transport users. This would stop tax dodging and eliminate much of the work that our police have to undertake. It is work that they should not have to be doing anyway and if they did not have it they would be freed to devote more time to tackling crime. Such a scheme would also mean that the large number of local authority employees engaged in licensing work could be released to do more useful work. It would be fair to the weekend driver. The man who used his car more would pay more. It would work out very well. In some way or another there must be a streamlining. I therefore again throw out that suggestion, and I still believe that something could be done on these lines.

6.45 p.m.

Mr. Gresham Cooke: We should congratulate my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris) and the hon. Member for West Ham, North (Mr. Arthur Lewis) on the public service they have done in bringing this growing scandal and racket to light. I estimate that at least one in 20, probably more, cars are unlicensed. If the Joint Parliamentary Secretary were to walk from Storeys Gate down Birdcage Walk towards Wellington Barracks, he would find at least one in 20 of the cars in that select area unlicensed. How many more are there in the less good areas?
The police are helpless. One of my sons worked in a factory in South London. He was rather annoyed to find two or three workers who never licensed their cars and never carried insurance. He thought that he might tell the police, but did not want to "grass" on his workmates. After three months, he mentioned it to me, giving me the numbers, make and colours of the cars involved. I rang up the superintendent of police of the area. He said that he would look into it. He asked me to ring back in three days' time. When I did so he said, "I am sorry, but my men were not able to find these cars yesterday." Either the word had gone round that something was to happen, or the police had not really taken the trouble, because the cars were undoubtedly there again a few days later.
If one car in 20 is unlicensed—and most of them are probably not insured as well—that means a total of nearly 500,000 cars, with at least £7½ million lost in taxation. Then there are commercial vehicles to be taken account of. My estimate is that £10 million altogether is not being collected. I am prepared to agree with my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) that the figure may be double and that my estimate may be modest. I live in a somewhat respectable residential area and if I went to the East End or to South London I dare say I would find the figures considerably higher than in Westminster.
I agree that there should be notification. It would be simple to do. I myself have forgotten my licence for three months and have then suddenly noticed the omission and repaired it. Millions of people must forget. On one occasion, I even forgot to take out insurance cover for two or three months because the insurance company forgot to notify me. On the other hand, I am always correct in obtaining my television and radio licence, because I am reminded about it. It is quite simple for local authorities to send out notifications and to chase up those who do not pay the tax.
The rest of us are paying £10 million to £20 million a year more than we need because the Government are unable to collect the tax in full. The Joint Parliamentary Secretary must take this matter seriously. Let him go along Victoria


Street tonight and count the cars unlicensed. I am sure that he would find that about one in 20 are unlicensed.

Mr. John Hall: Did my hon. Friend get a reminder about his unpaid insurance premium?

Mr. Gresham Cooke: No. The insurance company slipped up. I did not get a reminder and three months went by before I reminded myself.

Mr. Ron Ledger: But surely the hon. Gentleman has destroyed his own case, because he himself remembered and eventually obtained his licence. He did not have a reminder. He realised, in the case both of the licence and the insurance, that he had forgotten to renew them. The sort of people we are after surely are those who never take out any licences, including television and radio licences, and ignore all reminders. How would the hon. Gentleman get over that?

Sir Douglas Glover: I pay my tribute to my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris) and to the hon. Member for West Ham, North (Mr. Arthur Lewis), because I think that, over the last two years, they have done a great service over the problem of evasion. I was impressed by the arguments put forward by the hon. Member for West Ham, North in favour of stickers on cars. I would be inclined to make the penalty double the licence fee. For example, if the licence fees due totalled £150, the penalty would be double. That would be a tremendous incentive to people to get their licences.
It would appear that he has evolved a system which it would be easy to operate. Admittedly, it would take some time to get over what I have called the backlog, but the State would be getting £20 million per annum. My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) got a few titters when he talked about different areas and the different value of vehicles, but what has to be remembered is that a lot of these vehicles would not be licensed because they would not pass the test.
Therefore, not only would the Government be getting more money in for vehicles which should be licensed, but a lot of other vehicles would be taken off

the road and that would be a good thing for the safety of people on the road. I hope that the Parliamentary Secretary will note what has been said in this debate, because a solution has now been put forward showing a sensible and logical way of tackling the problem.
Although, on most occasions, I side with my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) against bureaucracy, on this occasion I side with my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor), who is on the Front Bench. I should like to take this opportunity of congratulating him on his rise to that illustrious position. May he stay there for a long time—on the Front Bench as a Minister—and rise to even greater positions.
The reminder system is a good one. When my hon. Friend for Worcestershire, South buys shirts from shops, and has a credit account, he does not expect that this wonderful memory of his will inform him at the end of the month how much he owes. He gets an account. The general system is that when someone owes money he is sent a statement of the amount he owes.

Sir G. Nabarro: The two cases are not in any way analogous. I buy my shirts from a shop in Jermyn Street and I pay a lot of Purchase Tax on them because I so choose. It is not a matter of statutory enforcement that I buy my shirts in Jermyn Street. In the case of motor cars it is a matter of statutory requirement that a person pays a licence fee. If reminders were sent out, at least 20 per cent. of them would be invalid due to changes of address, non-taxation of vehicles and a whole pile of different factors, so it would be utterly impracticable to run a 99 per cent. efficient reminder system.

Sir D. Glover: There is something in my hon. Friend's argument, but I do not think there is nearly so much in it. We have a statutory obligation to pay our Income Tax, but the State does not require us to remember to pay it. It sends us an assessment for taxation. If we do not argue against it then that is the figure we pay. Admittedly, most of us do argue against it, and probably get it reduced, but the State sends us a notification that we owe that amount of money
If the State sends a notification for Income Tax, I see no reason why it should not send a reminder for car licences, because the State is owed a certain amount of money. On balance, the State would get in more than it would lose by the on-cost, because even the honest element of the population which forgets to license its cars for three months does not say, "Would you backdate the licence three months and I will pay?" The duty for the three months that people forget would bring in a considerable amount of revenue to the Exchequer and that increase in revenue would more than cover the cost of notification.
Another thing to be borne in mind—and perhaps my hon. Friend would consider this—is that a car that is unlicensed is, as I understand the law, also uninsured. Therefore, you are not only doing something to protect the person who ought to take out a licence, but, if that car has an accident, you are ensuring that anyone damaged in that accident would be covered by insurance. Although there may be a valid insurance policy on a motor car, if there was an accident and the case went to court and damages were awarded against the driver, but the insurance company were able to prove that at the relevant time the car was not licensed, the injured party would have no claim on the insurance. For that reason there is something to be said for giving this reminder.
It is said that 20 per cent. of licence holders will have moved, but that applies to reminders for driving licences. Getting a reminder does not necessarily mean being forced by law to take out a licence. It is a reminder that if the car is still being run, it is time for relicensing. There is no compulsion about it. It could be done almost on a computerised system by the local licensing authority. It would not cost nearly as much as my hon. Friend thinks.
It would improve benefits for those who might be involved in an accident, because they could get damages which otherwise they could not get. It would also bring in more money to the Treasury, because there would be less avoidance and it would provide a clearer indication to the police and other authorities that any car or lorry on the road almost certainly had not put in its claim through Littlewoods

and was a tax dodger, and they could put a sticker on it the moment they saw it. If these two systems were brought in we should have a considerable improvement and I hope the Parliamentary Secretary will say he has been seized of the arguments of the hon. Member for Croydon, North-West (Mr. Frederic Harris) and the hon. Member for West Ham, North (Mr. Arthur Lewis).

Mr. Swingler: There has been a long debate on the subject of unlicensed vehicles and the method of combating the offence of failing to licence a vehicle, and I do not regret it. I said previously that I saluted the contribution made by a number of hon. Members, at least two of whom have contributed to this debate in their constant and persistent agitation about the extent of these offences and the need for further enforcement action.
I hope that hon. Members will not go around saying that nothing is being done. Something is being done. We are proposing to increase the statutory penalty for the unlicensed use of a vehicle from three times the annual duty or £20, whichever is the greater, to five times the annual duty or £50, whichever is the greater. That is not a small increase in the penalty.
I can tell my hon. Friend the Member for Heywood and Royton (Mr. Barnett) that this is a matter in which we have exercised our judgment, and we have based it on information supplied to us by the vehicle licensing authorities. I do not pretend that it is based on a complete statistical analysis. He asked—and I have not managed to check this from HANSARD—about the failure of the Ministry of Transport to answer one of his Questions. He asked what average penalties were being imposed county by county throughout the country for this offence, or something along those lines.
We do not have the complete and comprehensive statistical information about all the results of actions in the courts about this offence, and I doubt whether hon. Members would support the time and labour being devoted to our accumulating a complete statistical picture. Nevertheless, on the information which we have had given to us by the licensing authorities and in our own judgment we present the proposal to increase the penalty as a fair proposal and a fair punishment for the offence and as a necessary deterrent.

7.0 p.m.

Mr. Barnett: When a Minister does not have all the information requested, it would be courteous to supply the hon. Member who asked for it with whatever information is available. Simply to say that no information is available is not very courteous.

Mr. Swingler: I am extremely sorry if we have been discourteous. I shall certainly look into that and supply what information we have, but I must admit at once that we do not have all the information necessary to give the complete statistical picture.
There have been a number of suggestions going wider than the proposal in the Clause. In principle, I am not against the introduction of reminders, but hitherto it has been for the vehicle licensing authorities to decide whether there should be a system of reminders, and they have concluded that the extra cost and extra staff and various other problems involved are such as to make them against the giving of reminders. I find myself, unusually, in agreement with the hon. Member for Worcestershire, South (Sir G. Nabarro) about the practical reasons which he mentioned and which have been stated to us many times.
However, we are now on the verge of introducing a new system of vehicle licensing. Those who have read the White Paper on Transport Policy will know that we are now engaged in the preparation of a scheme to computerise the whole system of vehicle licensing. I therefore at once assure hon. Members that we will, naturally, consider the introduction of reminders in a computer scheme which for the first time will bring about the centralisation of the vehicle licensing system. Serious attention will be devoted to it.

Mr. Frederic Harris: It is particularly over the last five years that this tax evasion has become so tremendous. Is it not therefore time for more modern thinking about reminders in any case?

Mr. Swingler: The hon. Gentleman may be right and it may be both desirable and practicable. I agree with those who have said that this is a serious matter and we are seriously concerned about the amount of evasion of vehicle licence duty. That is why we are introducing the substantially increased penalty of the Clause.

Mr. Gresham Cooke: Is not the point the fact that the local authorities do not have the slightest interest in sending out reminders? They are only collectors of the tax and have to hand it on to the Treasury. If the money were going into their own pockets, they would be very keen to send out reminders, because they would then be short of the money, but, being mere collectors, they are not interested.

Mr. Swingler: The fact is that the local authorities, whose attention has been drawn to this matter several times, have been impressed with the practical and especially the financial reasons for not introducing a reminder system, because such a system would entail extra cost and extra staff. They have said that it is the obligation of the citizen to obey the law and to recognise when the time has come to take out a new licence for his car. I have given the assurance that, as a change in the whole vehicle licence system is to be made, it may become more practicable as well as more desirable to introduce a reminder system.

Sir D. Glover: Is it not slightly illogical that a local authority will send a reminder for a driving licence with a value of 5s., but will not do so for the vehicle licence costing £17 10s. or more?

Mr. Swingler: The hon. Gentleman will recognise that there are some differences. There is the difference of the number of times that a vehicle may change hands and the extent to which the proprietor of a vehicle may notify the authority that it has changed hands and the extent to which reminders might go astray and be wasted. There are a number of factors with vehicle licences which do not arise with driving licences and which have so far caused resistance to the introduction of a reminder system.
I should be extremely glad to be able to adopt any proposal for the simplification as well as the most stringent enforcement of the law, but I ask hon. Members, who have rightly drawn our attention to abuses and to the number of unlicensed vehicles which they see, especially in the back streets of London, to remember that they should not always spring to the conclusion that all the proprietors are automatically to be held to be guilty without investigation.
I appreciate what has been said about the simplicity and effectiveness of an automatic system, of putting something on a vehicle which is not showing a vehicle licence, with an automatic fine to follow, but such a system would assume that every vehicle, seen on the highway and not displaying a current licence, has not been licensed, and that would not be true.

Mr. Arthur Lewis: I do not suggest that an automatic fine should be slapped on, although, by the way, some people do not know that they are committing a technical offence if they do not display the vehicle licence. I suggested that a notice should be stuck on the car to say that unless the licence was stuck on the window or produced to the police, the owner of the vehicle would be liable to a fine. My hon. Friend knows that if I overstay parking time by only 10 minutes, I am automatically fined, but in that case I am breaking the law for only 10 minutes, whereas if my vehicle is not licensed, I am breaking the law for three months.
I am suggesting the sticking on of a notice to say that vehicle number so-and-so was seen to be contravening the law in that the Excise licence was not exhibited. It is true that the owner may have a licence, but if it is not displayed on the window, that is a technical offence. My suggested notice would say that unless the licence was produced at a police station within seven days, the vehicle owner would have to pay whatever fine was decided. If he had his licence, he would go along and show it and all would be well. If not, he would have to pay a fine.

Mr. Swingler: In that case, my hon. Friend will appreciate that painstakingly careful and sometimes protracted investigations are needed in order to do justice to the citizen. The idea that one can make an automatic assumption of guilt or innocence and deal with it by an automatic system of fines is invalid.
I hope that my illustration will impress upon hon. Members the fact that things are being done to tackle this problem. In 1966, the Greater London Council, which probably faces the most difficult problem of all in the Metropolis, dealt with 165,000 cases. One hon. Member spoke of the

police not reporting cases. Police are reporting cases in the G.L.C. at the rate of 15,000 a month. In 1966, the G.L.C. was dealing with 165,000 cases. Out of that number it was found that in 30,000 cases no excise licence offence had been committed. In 25,000 of those cases, the police dealt with the matter by mitigated penalty and there was no loss of revenue. Another 7,000 of the cases were the subject of prosecution, and at the end of the year 38,000 cases were still being processed and another 18,000 were awaiting examination.
Hon. Members may go on demanding more and more regulations, but we have to do justice to the citizens in this matter. The police are the responsible authority for enforcing this and other laws. If citizens are forgetful about displaying a licence in the window of a car, it involves the police in many weeks of investigation and inquiry in order to decide the seriousness of the offence committed; whether a prosecution should be initiated, what kind of penalty should be imposed, and so on. This accords with the laws laid down by the House providing for certain offences on the part of a citizen. I do not think that hon. Members of this Committee would lightly sweep all that away. I say to hon. Members who have been pressing us on this matter that there is an increase in enforcement action.
We know that there are particular problems about the G.L.C. At the time that it took over these powers it was short of staff; it was a difficult period. Now much more action is being taken in enforcement, both by the police and the licensing authorities. More prosecutions are being initiated. If this continues, more will suffer the higher penalties which we are droviding. I return to the point that it is generally agreed that we need the provisions of this Clause as a deterrent to the citizen against committing this offence of evading vehicle licence duties. It is fair and just that those who continue with this evasion should be subjected to that to the penalties for which we provide here.

Mr. Arthur Lewis: I strongly dispute what the Joint Parliamentary Secretary has just said. He has given a long explanation about this matter and the need for action. He talked about safeguarding those who are alleged not to have committed an offence, and quoted figures to


show that there had been no offence. I tell him, because he does not seem to appreciate it, that the mere fact of not having an excise licence exhibited is an offence. True, it is a technical one, and, while people may not be charged with it, they are liable. What I am trying to get over to him is that he ought not to be stressing the safeguarding of those who are law breakers. There are those who, month and after month, and year after year, do this.
My hon. Friend spoke of the difficulty of the G.L.C. The hon. Member for Croydon, North-West (Mr. Frederic Harris) and myself have been campaigning about this long before the G.L.C. was formed, so he cannot say that the G.L.C. was in difficulties. We were campaigning when it was the L.C.C. and that is going a long way back. When he talks about the poor people who have to have the opportunity to explain and all the rest, what about the poor person who has paid his tax and insurance and his 15s. to have his vehicle tested? When he goes to a parking meter and overstays for 10 minutes, he is not given a chance to have the matter to be investigated. He is not allowed any explanation or investigation. He has to pay the fine automatically, yet this is a man who has paid his road tax and insurance.
7.15 p.m.
The Joint Parliamentary Secretary says we must safeguard these other people. We should stick notices on the window saying that their vehicle has been seen without a licence exhibited, and unless that licence is produced to the police within seven or 14 days they will be liable to a fine, in the same way as a man who overstays on the parking meter. That is the answer.

Mr. Frederic Harris: The Joint Parliamentary Secretary went into the simplification of the system, but he never took up the point that I made. Could not his Department or the Treasury give serious consideration to a simplification of the whole method? We want to give the police more spare time, they are tremendously overworked. The administration costs at least about £2 million and taxation will still go on, whatever system is adopted, although we hope that it will be less. Why cannot the Government

give serious consideration to putting 5d. or 6d. on the price of petrol—

The Chairman: Order. It might be a very good idea, but it cannot possibly arise on the consideration of this Clause.

Mr. Swingler: I realise that I cannot go into the question of the abolition of the vehicle licensing system on this Clause, but I want to say, in reply to what my hon. Friend the Member for West Ham (Mr. Arthur Lewis) has said, that we are trying to deal with the problem of enforcement. I do not think that he assists the case by suggesting that we ought to assume that the proprietors of all the vehicles on the road which do not display an up-to-date licence are automatically to be presumed to be committing an excise offence.

The Chairman: Order. We really cannot pursue this. This Clause does not deal with the offence of failing to display a licence.

Sir Harmar Nicholls: If this part of the debate is to have any value at all the Government ought to realise the value of what has come out of it. My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) has made his point, and it looks as though the administrative costs of doing the things that some of my other hon. Friends wanted make it unreasonable. The hon. Gentleman the Member for West Ham (Mr. Arthur Lewis) has made his case and I feel that the Joint Parliamentary Secretary, while he cannot say that he will give effect to what has been suggested, ought to have been more forthcoming, in view of the strength of the hon. Member's argument.
If some of us who have our special subjects go to such trouble to investigate matters, as have the hon. Gentleman and my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris), so that they really know what they are talking about, and the Government, of whatever party, fail to pay regard to it, then Parliament will not be allowed to do its job. My plea is that we should have the benefit of this work by back benchers. Let the Government be more forthcoming in response to the hon. Gentleman and my hon. Friend; let them say that this


will be looked at, because they have certainly made a good case.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 12.—(VEHICLES EXCISE DUTY: ADDITIONAL LIABILITY FOR KEEPING UNLICENSED VEHICLE.)

Amendment made: No. 46, in page 15, line 46, leave out first 'the' and insert 'any'.—[Mr. Swingler.]

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Edward M. Taylor: I have two brief points to make. The Clause adds a penalty to the penalty which we discussed on the previous Clause. I think that, by and large, this is a sensible provision. Subsection (5) provides that
Where, on a person's conviction…
he is given an absolute discharge or put on probation
the foregoing provisions of this section shall apply as if the conviction were deemed to be a conviction for all purposes.
This appears to be a rather unique situation: a person has had an absolute discharge and yet the fine will still apply. I wonder whether there are precedents for this. Perhaps the Parliamentary Secretary would comment on that.
My second point arises from subsection (7). In Section 18 of the 1962 Act, there was a pretty strict duty to provide information in respect of trade licences. The Bill seems to extend this obligation to provide information throughout the whole sphere of Clause 11 and all the penalties involved. Would the Minister explain the reasons for this extension, which appears to be quite considerable?

Mr. Swingler: Subsection (5) is a provision to make it clear that a person who is convicted of unlicensed use of a vehicle will not escape an order for repayment of the back duty merely because the court decides, not to impose a fine for the offence, but to order probation or an absolute or conditional discharge. That is the only case in which it is operative. There is a precedent for this in Section 95(5) of the National Insurance Act, 1965.
The hon. Member for Glasgow, Cath-cart (Mr. Edward M. Taylor) referred

to the information required under subsection (7), which is an extension of the requirements of the Vehicles (Excise) Act, 1962, as to the giving of information in respect of offences under the Act. Section 18 of the 1962 Act requires an owner of a vehicle to give information about the identity of a driver of his vehicle. The new provisions are intended to bite on the owner of the vehicle or the person responsible for its licensing. Therefore, it will be very important for the enforcement authorities to be able to obtain information about the owner from any driver who may be detected in charge of an unlicensed vehicle.
The subsection places a duty to give information about the owner on such a driver and creates an offence for which the penalty is a fine not exceeding £20 for failing to give such information. When a person driving an unlicensed vehicle who is not the owner of the vehicle is discovered, if effective enforcement action is to be taken, the driver of the vehicle should be required to reveal to the police the identity of the owner of the vehicle.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 13.—(CHARGE OF INCOME TAX FOR 1967–68.)

Mr. Iain Macleod: I beg to move Amendment No. 18, in page 16, line 35, to leave out '8s. 3d.' and to insert '7s. 9d.'.

The Chairman: It would be convenient if we discussed at the same time Amendment No. 19, in page 16, line 35, leave out '8s. 3d.' and insert '7s. 6d.' and Amendment No. 21, in page 16, line 37, at end add:
(2) Section 220(1) of the Income Tax Act 1952 (reduced rate relief), as amended by section 2(7) of the Finance Act 1955, section 19(2) of the Finance Act 1959, section 12(5) of the Finance Act 1963 and section 1(2) of the Finance (No. 2) Act 1964 shall be amended, as respects the year of assessment 1967–68 and subsequent years of assessment, by the substitution for the words ' eight shillings and threepence ' in each place where they occur of the words ' seven shillings and ninepence' and by the substitution for '4s. 3d.' and '2s. 3d.' of '4s. Od.' and '2s. 0d.'

Mr. Macleod: That would be convenient, Sir Eric.
We come now to what we regard as the most important Amendments. We had hoped to start the day with this debate, but it was decided otherwise. I think that the debates which we have had recently, particularly the debate on the Question, That Clause 11 stand part of the Bill, show that we can do things at midnight which are impossible of achievement at teatime.
The Chancellor of the Exchequer has a number of anxieties, exacerbated' no doubt by recent events. He must, above all, try to walk the tightrope between the modest reflation which we and many other people have called for and his anxieties about the balance of payments. The Amendment suggests to him a way in which he could give an incentive to the people. I understand why the Chancellor of the Exchequer, with his many preoccupations, cannot be here for this debate.

The Chief Secretary to the Treasury (Mr. John Diamond): He is coming.

Mr. Macleod: As I said in the Budget debate, all Chancellors of the Exchequer, in my view, wait too long to reflate. I believe that the right hon. Gentleman has already waited too long. What was possible, and perhaps is still just possible, in 1967 might well be impossible in 1968.
The Amendments highlight a distinction between the two sides of the Committee. We on this side put our view quite plainly. The levels of personal direct taxation have increased and are increasing and should be diminished. Our pledges are entirely firm on this matter, and we would wish in due course to register our view in the Division Lobby.
The first question is whether there is a need for a reduction in personal direct taxation such as we propose. The Chief Secretary, speaking on the Second Reading of the Bill on 2nd May, addressed himself directly to this point. He gave the figures of total taxation, and he included social service contributions and local rates, as a percentage of the G.N.P. at factor cost. That is fair enough. He then used the average figure for three years—1963–65. But this enabled him to use two Tory years to counterbalance the additional taxation which was imposed in 1965.
If we look at the individual years, we clearly see why an Amendment such as we propose is necessary. Taking the Chief Secretary's points alone, in 1964 the percentage figure for the United Kingdom was 32·3; in 1965, 34·6; in 1966, 37·6; and estimated for 1966–38·2, and for 1967–68, 39·1. Therefore, the percentage taken in total taxation has increased from 32·3 in 1964 to an estimated 39·1 in 1967–68. This shows the hideous nature of the burdens of taxation, particularly direct taxation.
7.30 p.m.
Secondly, the countries which the Chief Secretary selected to compare with this country were remarkably selective. On 19th January, he gave figures for seven countries. When he used them on 2nd May, he left out two of the E.E.C. countries, because these were the two lowest figures and they did not suit his argument. He brought in Sweden which has a high figure, and therefore suited him. Having done that, he left out the United States which has a low figure and did not suit his argument, and produced an average of the remaining high taxation countries in Europe and claimed that we were one of the least heavily taxed countries. With respect, that is almost childish in the selection of statistics to put before the House, and whatever truth there may have been in this argument—and indeed there was some during the Conservative years—it is quite clear that there is little or none as we move into the Socialist years, which is what we are considering.
It seems that the severity of direct personal taxation in this country is greater than in any other remotely comparable country, except perhaps Sweden. I think, also, that it bears heavily on large families, and the reason—I do not want to pursue this; I am not sure that it would be in order to do so anyway—is that this is aggravated by our preference for a few specific indirect taxes on tobacco, petrol and alcohol, as against the general consumption taxes which so many of the other countries have. Nor can we argue—and this is a matter which the Chief Secretary argued—that our present system is more equitable to the bottom income groups, because, with heavy drink and tobacco duties, our indirect taxation structure is regressive in comparison with those of most Continental countries.
It therefore seems to me that the level of taxation in this country, particularly of personal direct taxation, is clearly too high however one studies the matter. I think there can be little doubt that this contributes very substantially to the brain drain. There can be little doubt that, with levels of taxation as we have them at the moment, if we succeed in getting into the E.E.C. considerable impetus will be given to some of our senior management in particular to seek service in countries which do not take such a high percentage of their incomes.
Perhaps I can illustrate that by referring to an article in The Times of Monday, 15th May. It gave the graphs for eight countries, including E.E.C. countries, France and Germany, and including Austria, New Zealand and the U.S.A., which are "brain drain" countries from our point of view, and said:
Comparing the eight graphs above showing marginal rates of taxation in various countries it is not hard to see one good reason for the brain drain. A £50,000 gross salary in Britain would be worth only a little over £10,000 net while the same gross level in the United States would leave the employee with over £25,000.
The high marginal rate in this country means that it is almost impossible—and this is a problem which has confronted the nationalised industries—to have proper differentials in a salary scale, and if one wants to have a distinction—quite a modest one—in real terms between the top man and his number 2, or the number 2 and the number 3, there must be a really staggering difference in the gross income that is offered to them.
We come, then, to what we suggest here, a reduction in the standard rate of Income Tax, and I am addressing my remarks in particular to Amendment No. 18. The Chancellor—and he and I have argued this before, so I need do no more than touch on it now—argues whenever he can that all that matters is the average rate of tax. I hold firmly to the view that that is absolute nonsense and that what matters is the marginal rate of tax. It is true that if one is a Minister of the Crown, or a civil servant, with a fixed income, it does not matter whether one works harder, or not so hard, it makes no difference, but to the people who take risks—and this is what matters, and it is to this that the Amend-

ment is directed—it is the marginal rate of taxation above all that matters. This point was made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) at an earlier stage of our debates.
Quite clearly the answer to the problem which I have been posing is too wide even for the debate which I am now introducing. We want to see economy of choice, and we feel that we should tax consumption wherever possible rather than income. We therefore wish to reduce taxation on income in the way that I am indicating.
The best estimate that I can make about the cost—and no doubt the Chancellor will come to this in his speech—is that it would cost £127 million in a full year to implement the 6d. off Income Tax, and that the amount for reduced rate relief would bring the total bill for the two Amendments in my name to about £200 million. Unquestionably this is a formidable amount of money, and it may well be that the Chancellor will base a large part of his rejection of this case—because I feel confident that he will reject it—upon cost alone.
I have made it clear on a number of occasions how I think this money should be found. I do not believe that in this year, 1967, even for such a worthy aim as the reduction of personal direct taxation, one should make slashing reductions in the call which the public services make on our resources. I think that would merely exacerbate a serious economic situation which, for various reasons, I see as more serious than the Chancellor does at the present time.
I think that it would be right to find a large amount of money through transfer payments. I need not go into the various proposals, such as prescription charges, school meals, and so on, which have been put forward from this side of the House. When he is confronted with a proposal—and he did this again last night as I was listening to him during the Green Paper debate—the Chancellor almost invariably says that any increase in taxation or any reduction in one case must mean an increase in another. It is recorded in column 748 of yesterday's HANSARD that my hon. Friend the Member for Orms-kirk (Sir D. Glover) said that this could be achieved either through growth or savings. I think that I made the remark, but anyway in HANSARD it is attributed to


my hon. Friend. The Chancellor said that that was true up to a point, but it comes to an end, and with respect one can say that again, because growth and National Savings have nearly come to an end under the administration of the present Chancellor of the Exchequer.
We are arguing now about a minimal rate of growth and the Chancellor at least will not deny that, for whatever reason, the decline in National Savings since he took office has been quite appalling. Perhaps I might quote the figures for recent years giving the increase in total outstanding which includes interest paid out, accrued interest, and Defence Bond redemptions. In 1963 there was an increase of £315 million. In 1964, £357 million. In 1965 the increase amounted to £73½ million, a staggering change, and in 1966, although this is an estimate, it was minus £38⅓ million. If we were to get back even to the level of National Savings attained under the Tory Administration we would not have the slightest difficulty in meeting this and indeed many other claims or suggestions for additional expenditure which are put forward on the Notice Paper.
The truth is that the Chancellor has been wrong again, and that he will have to go into reverse once more, for the third time, either in June or in July. He was saying last weekend that he had some shots in his locker to fire. With respect, that was not the impression that he gave at Budget time. The Chancellor is rather long on metaphors, but he is a little short on ideas. We thought that we would offer him this idea as a contribution towards his present thinking. There have been pressures for reflation and also demands for the Chancellor's resignation. I hope that he will not take any notice of those. He is my man. I may not be fond of some of the things he does, but the thought of anyone else occupying his position from the Government Front Bench fills me with horror. I prefer to stick to the couplet:
Always keep a hold of nurse
For fear of getting some one worse.
I hope that the Chancellor will stay in his present office for some time.
All the same—and I say this quite sincerely and with considerable regret—in the 20 years or so that I have been concerned in one way or another with Finance Bills, and have known Chan-

cellors of the Exchequer, I have never known a Chancellor who was so docile to the Treasury and the banks. This is a great pity. It may have been fortunate, in a curious sense, a year ago, but it is quite wrong now.
To sum up, the view of my hon. Friends and myself is, first, that our taxation structure is hopelessly lopsided because of the emphasis it places on personal direct taxation and a few indirect taxes. To adjust that would mean, in general, moving towards taxation of consumption rather than taxation of income. Although that is too big a subject to tackle tonight, we can at least make a start along the lines that I have suggested.
Secondly, we hold the view that what matters to people—especially those upon whom we most depend; the people who have to take risks if we are to survive and prosper as a country—are the marginal rates of taxation. Whatever arguments we may have about the total weight of taxation it is not and cannot be in dispute that the marginal rates of taxation are savagely penal. There can be little doubt, also, that this is a major contribution towards the brain drain.
We feel that the Chancellor should move, especially in terms of personal direct taxation. That is why we regard this as one of the most important Amendments before the Committee. As for finding the money, the right way in this year—I do not say that it would be so in other years—is, first, through transfer payments and the reduction or cancellation of such expenditure as premium payments and others which my hon. Friends have consistently condemned. If we do these things not only can we find the money required; we believe that we shall give a great impetus to individuals throughout the country.

7.45 p.m.

Sir G. Nabarro: I support my right hon. Friend, and in doing so I commence in a directly personal vein. Last year, I was privileged to move precisely the Amendment which my right hon. Friend has moved this evening, namely, a reduction in the standard rate of Income Tax by 6d. in the £.
Last week, my right hon. Friend commented on the fact that he sought, on occasions, to persuade my hon. Friend the Member for Yeovil (Mr. Peyton) and


myself as to Divisions on certain Finance Bill Amendments. He can at least congratulate himself on the fact that he was eminently successful last year. He persuaded me not to force a Division at that moment because of the condition of the Revenue. But I deployed my arguments and attracted a great deal of attention, in my party and in the country, to the punitive levels of taxation.
I refer at once to the Chancellor, who sneered at my efforts and who took the line that the marginal rate of taxation, at 18s. 3d. in the £ for the top Surtax payer—and, in the present year, 19s. 3d. in the £—were irrelevant, because what mattered was the effective rate of direct taxation. I said that the whole of my case was based on the fact that the punitive marginal top level of direct taxation—that is, the aggregation of Income Tax and Surtax—was hopelessly out of line with that of our principal industrial competitors oversea; that it was purely political in its inspiration in this country that the rate should be so high; and that a substantial group of the Tory Party, including myself, intended to apply its efforts in the next few years in seeking a reduction in these very high levels of taxation.
This year, we start with Income Tax. My right hon. Friend's Amendment, which is the official Tory Party Amendment and which I entirely support, seeks to reduce the standard rate by 6d. Sir Eric, you have kindly associated with that Amendment, Amendment No. 19, in the names of my hon. Friend the Member for Yeovil, my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor), my hon. Friend the Member for Gosport and Fareham (Dr. Bennett) and myself, which seeks to reduce the standard rate to 7s. 6d. in the £—a reduction of 9d.
There is a technical reason for that. I shall not stray out of order by alluding to it at great length, but the Chancellor will observe Amendment No. 23, which seeks to recast the levels of Surtax so that the highest rate payable is 7s. 6d. in the £. Our exercise is designed to associate a standard rate of Income Tax of 7s. 6d. in the £ with a top range of Surtax at 7s. 6d. in the £, thereby giving an overall rate of direct taxation, at the highest marginal level, of 15s. in the £, instead

of 19s. 3d. this year and 18s. 3d. in the ensuing year.
We shall no doubt return to Surtax on the next selected Amendment, and I am again grateful to you, Sir Eric, for selecting the Amendment setting out my recasting of Surtax alongside the official Tory Amendment which seeks to reduce Surtax by 10 per cent.
There will always be acute controversy between the two major political parties as to what extent high levels of direct taxation impinge upon incentives in industry, trade and commerce. The hon. Member for Heywood and Royton (Mr. Barnett) constantly contradicts me when I say that these high marginal levels of direct taxation are a gross disincentive to additional effort. The wealth of this country is created at the highest level by men who lead large industries, companies and firms. One has only to look at the contribution which the large companies make to the nation's export trade to realise that these large companies predominate, and that the men who lead them are the men who are paid more than £10,000 a year. They are the captains of industry. All the skill in the world on the workshop floor is brought to naught without the enterprise of the men at the top of industries, companies and firms.
The Socialists may not like that philosophy, but it is my philosophy, and it is a capitalist philosophy. I sit on these benches because I believe in capitalism and not in Socialism. I have learned all the way up in industry that, unless men are rewarded commensurate with their efforts and the risks they take, the optimum achievement is never realised. There are few of them in this country. There are increasing numbers, of course, in the bracket between £2,000 and £10,000 a year and there are millions of P.A.Y.E. personnel contributing sums of between £100 and £1,000 a year in indirect productive effort in minor management tasks and duties and, of course, as skilled, semiskilled and unskilled men on the workshop floor.
Although I have often been shouted at at public gatherings on this point, I have never believed that it would be good fiscal policy to try to ameliorate P.A.Y.E. on overtime earnings. The only way to give incentives to men on the workshop floor to work harder and longer is to


reduce P.A.Y.E. It is because I am utterly convinced of that that I support my right hon. Friend's Amendment so strongly.
As to general economic and financial strategy in this context, I strongly disapprove of the Chancellor's speech at Leicester last Saturday. It was a deplorable speech. The reception in the Sunday Press was exactly what I did not want in the nation's contemporary economic position. The principal Sunday newspaper, that is, the one with the largest circulation, the News of the World—[Laughter.] I am sorry to have caused merriment opposite, but it does sell 6.8 million copies and is, therefore, the principal Sunday newspaper. In 2-inch tall headlines, it said:
The Freeze is Over—Official".
That is an invitation to every working man or woman, whether a wage- or salary-earner, to demand a substantial pay increase on 1st July. The Chancellor did it—and after war had broken out in the Middle East—

The Chairman: Order. I must remind the hon. Gentleman that the Amendment with which we are dealing relates to the standard rate of Income Tax.

Sir G. Nabarro: A passing reference only, Sir Eric.—[Interruption.] I am sorry. War actually broke out 24 hours later. I withdrew that and say instead that war was imminent and only a few hours away.
The Chancellor's strategy is wrong. He has created the impression that everyone can ask for an increase in rewards on 1st July. The floodgates will be opened—

The Chairman: Order. I have tried to indicate to the hon. Gentleman that we are not discussing general economic policy or the freeze, but the rate of Income Tax.

Sir G. Nabarro: Yes, Sir Eric. I am about to come to that—

The Chairman: Order. I should be obliged if the hon. Gentleman would come to it right away and omit the other parts of his speech which he intended to make.

Sir G. Nabarro: I have delineated the main parts of the Chancellor's strategy and then compared what it

should be—an early reduction in the standard rate of Income Tax to give greater incentives for greater productive effort. I want none of the nonsense about the claim that the revenue should immediately be made good by additions to other taxes, as mentioned by my right hon. Friend, because the steady downward trend of National Savings and other forms of personal savings shows why the Chancellor has to continue direct taxes at these punitive levels.
It is perfectly in order, I believe, to describe how the loss of revenue caused by a reduction in Income Tax of 6d. or 9d. in the £ should be made good and I choose, with the deepest respect to my right hon. Friend, to quote these figures in a different form, and from a Treasury publication.
In parenthesis, I would refer to every Chancellor since Sir John Anderson, which is a quarter of a century ago. Mr. Hugh Dalton, Sir Stafford Cripps, Mr. Hugh Gaitskell, Mr. R. A. Butler, Mr. Harold Macmillan, Mr. R. A. Butler, Mr. Derick Heathcoat Amory, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd)—they should all be my right hon. Friends, of course, in the last three or four creations—and then my right hon. Friend the Member for Barnet (Mr. Maudling), were all unanimous in one material regard, and this policy has been enunciated by the present Chancellor since 1964. He has always said, "If I cannot have direct taxation revenue, I will accept savings as an effective substitution". His predecessors all said the same thing. But does this Chancellor practise it? Of course not.
I will quote comparative figures from the National Income and Expenditure Blue Book for 1966 issued by the Central Statistical Office and presume that there will be no altercation this year between the Chancellor and me about the source of my figures. The aggregation of National Savings, net surplus, were as follows: in 1955, under a Tory Government, £40 million; in 1956, £82 million; in 1957, £68 million; in 1958, £204 million; in 1959, under my right hon. Friend, £396 million. Why? To offset the reduction of 9d. in the standard rate of Income Tax from 8s. 6d. in 1959.
The figures continue: in 1960, £338 million; in 1961, £211 million; in 1962, £240 million; in 1963, £318 million—we are still in those halcyon years of Tory rule—in 1964—£358 million. In 1965, the first year of Labour Government, with the collapse of confidence, there was a collapse to £74 million, a loss of £284 million in National Savings in the first year of Labour Government.
My right hon. Friend contends that this Amendment would cost about £200 million a year. If the Chancellor acted dynamically and positively over National Savings, instead of just scraping the surface, it would be easily practicable and possible to finance the reduction in Income Tax sought by my right hon. Friend and, in slightly larger measure, by me.
The Socialist Front Bench is beginning gradually to learn the facts of fiscal and financial life. It takes a long time to teach hon. Gentlemen opposite. We even had the Chancellor of the Exchequer paying his tribute and respects to company profits this year—a long shot from the sort of drivel he used to put over from the Opposition Front Bench when he was attacking company profits.

8.0 p.m.

Mr. Callaghan: The difference between us must be that I at least have stopped talking drivel.

Sir G. Nabarro: I had not recognised it. I welcome the right hon. Gentleman's conversion and I am delighted to have him in my camp.

Mr. Iain Macleod: It has been hard work.

Sir G. Nabarro: As my right hon. Friend says, it has been hard work getting him there. However, he is now in my camp paying tribute to company profits. I welcome him and hope that he does not retract any of those I thought somewhat altruistic words which he spoke during the Budget debate.
I come to one of the right hon. Gentleman's colleagues who is exactly on my line on Income Tax. The Home Secretary said in a speech which he delivered on Saturday, 13th May, to the London Labour Party—a significant date; 48 hours after the London elections:
We must make up the ground which has been unavoidably lost.

He had to tell them something about their dismal failure. He went on:
To believe that we could avoid the need for this by savage increases in direct taxation would be to turn into a blind alley which would lead us directly away from our main objective. We must face the fact that in the two and a half years of Labour Government … the growth rate we have been able to achieve has been a disappointment. Policies for the redistribution of incomes would not modify the pressing need for a rapid growth.
The right hon. Gentleman continued:
Taxation policy must be fair and must be directed firmly in favour of those to whom unrestricted economic forces would be most harsh and unjust. But redistributive taxation would not solve all Britain's problems. Its effects could not possibly be large enough either to make a real impact on the position of the lower paid or to finance a big advance in the social services.
His pregnant words which followed were:
In addition, we cannot be indifferent to the disincentive effect which very high taxation on earned incomes might have.
I am waiting for the Home Secretary to be translated to the Treasury and the Chancellor to be translated elsewhere.

Mr. Iain Macleod: indicated dissent.

Sir G. Nabarro: Perhaps my right hon. Friend does not agree.
At least I shall have this in my armoury to quote to the right hon. Gentleman, because that was the purport of my speech last year, when the Chancellor's altercation with me led him to sneer at me as one of the "rich, well-booted company director class".

Mr. Callaghan: Oh, dear.

Sir G. Nabarro: The right hon. Gentleman sneered at me. Is he aware that the well-booted company director class very largely creates the wealth of the nation? On that occasion, the Daily Mail printed not a word of the argument for incentives derived from lower levels of taxation, but the following morning wrote:
Poor old Nab—18s. 3d. in the £.
I wish that the Chancellor would not laugh so much. This is a serious matter.

Mr. Callaghan: I am crying my eyes out.

Sir G. Nabarro: I was not pleading for myself. I sincerely believed the


philosophy which I endeavoured to expound and which is now formal and official Tory Party policy. It is that we must reduce the standard rates of Income Tax and Surtax.
My right hon. Friend the Member for Enfield, West alluded to competitive industrial Powers and their levels of direct taxation. There is only one industrial Power with which I ask the Chancellor to compete, and that is the United States. The largest income earned by any American is taxed as to 70 cents on the last dollar that he earns, which is 14s. in the £. It is called the marginal rate. I am not talking about average or effective rates or anything else. It is 70 cents on the last dollar earned, and that applies to the President of General Motors or the President of Honeywell—to people earning 500,000 or 700,000 dollars a year. Whatever their earnings, they keep 30 per cent, of the top slice. Here in Britain we are taxed not as to 70 cents, but as to 96¼. cents. That is the rate this year. Perhaps it is slightly less in other years, but certainly it is equivalent to 91¼ cents even in those years.
The purpose of my two Amendments is to persuade the Chancellor this year—and my party in the longer term, if the right hon. Gentleman rejects them—that we in Britain, if we seriously wish to compete with out big industrial neighbours, must have top levels of taxation which are approximately equivalent to their top levels. I believe that the highest level in this country should be 15s. in the £, irrespective of income. People should be allowed to keep a quarter of their income, while the rest should be paid in taxation. I would accept that as a reasonable compromise.
Much has been written about the brain drain. My hon. Friend the Member for Horsham (Mr. Hordern) contributed a magnificent article to the Daily Mail on Tuesday, 23rd May, entitled, "Operation Brain Gain", in which he asked:
What makes them think it will work?
He was addressing his remarks to the Government. We are making altogether too little of the impact of the punitive levels of direct taxation on the emigration of our best brains from this country. My hon. Friend devoted his article to technological considerations and incomes.
A Worcestershire Evening News and Times article of 28th April alluded to a Mr. William Douglas, an American in this country, whose task is to entice foreign specialists to join the ranks of industry in his country. The article stated:
He is seeking more scientists and engineers for American industry, aviation and space projects.
Among other things, incomes in America before tax are three times those offered in this country, and after tax they are a great deal higher, because American levels of direct taxation all the way up the scale are lower than our.
Mr. Douglas was reported as having said that of the
… 532,000 graduates from United States universities this year, only 37,000 would be engineers, while at least 10,000 engineers would leave British universities. So Britain can afford to lose some brains".
Does any hon. Member believe that today we can afford to lose science graduates—our greatest single requirement in industry, trade, commerce and the teaching profession? It is true that sometimes for these men who emigrate it is the attraction of the sun, sometimes it is the attraction of better opportunities or better living conditions—I do not know. Personally, nothing would ever make me emigrate from Britain, but different men have different ideas about these things. I am quite certain that the mercenary aspect conquers their innate sense of patriotism, and I do not always blame them. If they can earn three times as much gross in foreign competitive industrial countries where their levels of taxation are much lower, there is a powerful mercenary inducement to go abroad.
If the Chancellor of the Exchequer really means what he says, with his colleague the Minister of Technology, about energetically tackling the "brain drain." whereas I know that, his policies having been settled, he cannot concede the formal and official Amendment of my right hon. Friend to reduce the standard rate of Income Tax by 6d. in the £, or my Amendment to reduce it by 9d. in the £, I entreat him, in the strictest non-party political sense, to think carefully about this major problem between this year and his next Budget—or the Budget of one of his colleagues—because I believe that the first priority must be to reduce direct taxation, Income Tax, by at least


6d.—I hope by 9d.—coupled with a reduction in Surtax, at very small cost to the Revenue, which would adjust the top marginal level of taxation at a maximum of 15s. in the £.

Mr. John Cronin: I listened with interest to the speech of the hon. Member for Worcestershire, South (Sir G. Nabarro), but his political points seemed to be made very largely for the benefit of his constituents. I was puzzled to hear him say that the Labour Party has always been opposed to profits. I used to take some interest in financial matters some years ago and I cannot recollect any objection ever being taken to profits, provided that they were reasonable. I do not think that it is Labour Party policy that we should encourage losses. What is business for, other than to make profits?
This country must be one of the most highly taxed of all countries, and that, by itself, is not a desirable circumstance. Nevertheless, these three Amendments are of an entirely michievous nature and I am quite sure that my right hon. Friend will not require any encouragement from me to reject them. It is quite obvious that if, in our present economic situation, there were a reduction in taxation it would have a most adverse effect on our balance of payments and on the position of sterling. It would, therefore, be most undesirable. At the same time, the Chancellor of the Exchequer might well give some serious consideration, at an early and convenient time, to reducing the standard rate of Income Tax.
There can be no doubt that the present rate must have some disincentive effect. These are mere truisms, but everyone who works does so not only for the enjoyment of his work, but for the amount of money he can obtain by doing the work. If the amount is reduced it must to some extent, in the nature of the economic context, reduce his desire to work. We see that industrially, when negotiations between trade unionists and employers so often take into account the effect of Income Tax will have on earnings. There is no doubt about the disincentive.
The hon. Gentleman referred to the brain drain, but I think that he has his facts wrong to some extent. The brain drain often indicates the frustration which scientists, doctors and others feel in their

working conditions or in their ability to carry on research or the scientific work in which they wish to take part. But I believe that the high rate of taxation must have some marginal effect, and must, therefore, make some contribution to the brain drain.
I suggest, too, that a high standard rate of Income Tax must have an undesirable political effect. Sooner or later, during the next few years, we will have to face another General Election, and I do not think that it will be politically helpful to us if we are always considered to be the party that has the highest taxation. Although I would not in any way support these Amendments, I suggest that my right hon. Friend might well give consideration to reducing the standard rate of Income Tax during the course of the next year or two.

8.15 p.m.

Mr. Robert Sheldon: One of the annual events we await—to say that we look forward might be to overstate the case—is the hon. Member for Worcestershire, South (Sir G. Nabarro) telling us about his difficulties in paying Income Tax and Surtax at a marginal rate of 18s. 3d. in the £. He always goes on to say its disincentive effect, while applying to everyone else does not apply to him.
One of our main difficulties is that for social justice, as well as to distribute burdens equally on the shoulders of those who are able to pay, Income Tax must be progressive and, because of that, at each level of taxation as it progresses upwards there must be a marginal rate. Another difficulty is that we publicise the general marginal rate so well in the manner of the worst public relations that could be devised. No one selling motor cars would add the price of the accessories to the cost of the car.
The trouble is that 8s. 3d. is a marginal rate for a small proportion of the people who pay tax. Out of 22 million taxpayers, three-quarters do not pay tax at the standard rate, and of those 22 million, the 21 million who pay tax on earned income do not pay even at the marginal rate of 8s. 3d. Because of the two-ninths relief, they pay at a rate of 6s. 5d.
I am not saying that problems of taxation would be alleviated by making it


appear less, but there is no need to make the marginal rate, that applies to a few people by comparison with the very large number who pay tax, appear more. The Amendment we have put down tried to show that 6s. 5d. was, in effect, the actual marginal rate corresponding to the 8s. 3d. which in itself applies to a few people. It may well be that we should be spending our time trying to introduce a system of taxation which would show rather more clearly than does the present system the levels of taxation that people should pay, and not giving them the wrong impression that they are paying very much more than they are, which arguments are widely used on the shop floor in indnustry and elsewhere.
My right hon. Friend the Chancellor of the Exchequer, by introducing these wide ranges of taxes—which I have always said will turn out to be most valuable in the future—has the opportunity of using taxes in a different way one against the other, but one of the things we constantly hear is the need for incentives and the disincentive effect of taxation. It is an extraordinarily difficult thing to prove quantitatively. We know, for example, the regional employment premium is being introduced to encourage firms to move to development areas. It is an incentive for them.
The Selective Employment Tax provides an incentive for the firm to save labour. Corporation Tax provides an incentive to a firm to plough back. How real is the incentive effect of all the legislative economic changes we bring about? If these are incentives it is right to say that Income Tax, too, is bound to have some disincentive effect. The difficulty is that we are unable to quantify this disincentive effect.
Although then, almost certainly, Income Tax acts as some sort of disincentive, Corporation Tax does not act in anything like the same disincentive way, because it will bear rather differently on the individual in a company. The executive is not likely to be influenced as to the hours he puts in and the manner in which he works because Corporation Tax may go up, but employees are likely to be influenced by the way in which Income Tax affects their overtime rates. What Corporation Tax does is to act as a disincentive to risk which can be offset by investment grants.
We have here the nature of some sort of bargaining between the reduction of Income Tax and an increase in Corporation Tax offset by investment grants, but the steady barrage we have heard and will continue to hear about incentives and disincentives must be, as I believe it can be, resolved if the Commissioners of Inland Revenue set about research projects. It is wrong that such an organisation does not consider one of its main duties to be to find how incentives are affected by various kinds of taxation and in what manner they work on the economy. This I would urge very strongly on my right hon. Friend.

Mr. Ian Lloyd: This is always an interesting stage of a Finance Bill when the whole question of the rates of Income Tax and Surtax are discussed. I am delighted to see the Chancellor here, because the point I shall make is very brief and I think it will interest him.
The The Daily Mail may have referred to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) in his attempt, as it appeared to the newspaper, to further his own particular interest. I certainly am not furthering any particular interest of mine, because my tax rate comes by no means anywhere near that of my hon. Friend. Therefore, anything I say, although it may benefit him and a large number of people, certainly would not benefit me. That is quite irrelevant to the point I wish to make.
The Chancellor is concerned—I hope he will admit this if I make the point specifically—primarily and fundamentally today with the export performance of this economy. He is concerned with the relatively small number of firms—I put it at probably between 500 and 1,000, that is the order of magnitude—which statistically account possibly for 80 per cent. to 90 per cent. of the exports of this country. In the personnel of this group of firms there are probably, again I refer to orders of magnitude rather than specific figures, 4,000 to 5,000 export sales managers or export salesmen who do the hard work, go abroad and do the selling. If one wants to broaden this, as I think it could be broadened if it were given sufficient thought, possibly half a million industrial


operatives could sustain the export production of this group of firms.
The Chancellor, as has been suggested this evening, will probably decline any invitation to tamper with his tax structure. He has stated in his Budget what he proposes it should be, and I should be surprised if he says he is convinced by our arguments and will take 6d. or 9d. off Income Tax or tamper with the structure in any way. If he can be offered a cast-iron guarantee that he will not lose, if he can be convinced that such a guarantee could be made to work, would he in the broad national interest, and if he were convinced that what I am saying is in the national interest, be tempted or prepared to take a risk?
In the case of this fairly narrow but overwhelmingly important sector of national production, he should as it were give the firms and individuals concerned an option to stabilise their tax payments. He could offer them the right to choose for a period he could determine—this obviously would have to be experimental—the right to pay next year exactly the same tax as they paid this year irrespective of their earnings or performance. If the Chancellor accepted this he could have a cast-iron guarantee that he would not lose, but what a tremendous incentive would be offered to the firms and individuals concerned, particularly in exports, to increase their performance in a way which probably would stagger them as well as him.
It may well be that the Chancellor thinks this is something so difficult to work out in detail and practice that he is not prepared to consider it, but I do not see any reason why the country would not accept an apparatus of discrimination which would justify it solely on this basis. If this were to succeed, if these 500 firms, given this tremendous opportunity possibly only for one year or two years to make a tremendous increase in their earnings, and if as a result they improved their export performance by 30 per cent. or 40 per cent., the incidental income effects throughout the economy would be so buoyant that incidental losses would probably be compensated directly and the individuals concerned would be given an opportunity, possibly for a limited period, of increasing their income by the whole

of the amount of the gross earnings in exports. They would have a tremendous incentive to increase that proportion of their earnings which they could show was derived wholly from exports.
This may sound a somewhat far-fetched idea. I know that the Chancellor and many others have sought many ways of improving export performance and of segregating it from the rest of the economic performance, not that we do not want to improve the other part of the agreement, but this is a possibility which should be considered seriously, perhaps not in the precise form I have suggested but at least as a mechanism which could be employed. It would guarantee to the Treasury an income not less either in the individual case or the broad from the whole range of export firms so defined and not less than that which the Treasury received this year. It would guarantee to the country the whole of the incidental non-fiscal non-tax benefit of an outstanding increase in export performance. This is something which ought to tempt the Chancellor. I am sure that the ingenuity of his officers would not fail him in devising methods of implementing such a scheme.

Mr. Barnett: I am not opposed to the idea of reducing the standard rate by 6d., but I am opposed to the dishonesty of some of the Opposition's arguments. There have been a whole series of assertions. The hon. Member for Worcestershire, South (Sir G. Nabarro) said that there would be some relief for a man paying £100 a year. Twenty pounds of that £100 would be at the standard rate; therefore, such a man would, under the Amendment, get relief of slightly under 6d. a week. I suppose the contention is that for this massive incentive a man paying £100 a year in tax would work a lot harder. The average working man, married and with two children, earning £20 a week, is not paying tax at the standard rate. Indeed, if he has a mortgage, he is not paying any tax.

Sir G. Nabarro: I think that the hon. Gentleman is deliberately misrepresenting what I said, If he will read the HANSARD report of my speech in the morning, he will find that I referred to the man who is paying Income Tax of £100 per annum, not the man who has an income of £100 per annum.

8.30 p.m.

Mr. Barnett: The only difference between the hon. Gentleman and other hon. Members opposite who make assertions is that the hon. Gentleman makes them more arrogantly. On Second Reading I dealt with the question of incentives. The right hon. Member for Enfield, West (Mr. Iain Macleod), in winding up that debate for the Opposition, managed to unearth a Canadian report on taxation which, he said, was only a few weeks or a few months old, as compared with the surveys which I had quoted. In fact, the Canadian Royal Commission was set up in 1962 and the quotation which the right hon. Gentleman made from the Report—I refer the Committee to HANSARD, 2nd May, 1967, cols. 435 and 436—begins with the words, "We are persuaded". This is the opinion of the members of that Royal Commission. What the right hon. Gentleman was not doing was reporting, as I was attempting to do, the results of an objective survey.
Further, the latter part of the quotation that the right hon. Gentleman made was to the effect that the Canadian Royal Commission thought that the top marginal rate should not be greater than 50 per cent. This is what the right hon. Gentleman recommended to the House of Commons.
It is important to know just what effect such a recommendation would have. Page 76 of Cmnd. 3200—this is the Inland Revenue Report for the year to 31st March, 1956—states that the total number of Schedule E taxpayers for the last year available—1964–65—was 20,873,000. Of those, 48,000 were earning more than £5,000 a year. Not all of those 48,000 will be paying a top marginal rate of more than 50 per cent. because up to £7,000 a year the top marginal rate would be about 10s. 6d. Therefore, 48,000 out of a total of 20,873,000 is the number that would be helped if everybody was brought down to a rate below 50 per cent.
This might be worth doing, but the Committee should be clear about precisely what we should be doing. The Opposition have said that such a reduction would help key management in, for example, the export field. It would have the massive effect that the Opposition are constantly telling us that a reduction

in direct taxation would have—I am not opposed to a reduction in direct taxation—only if the Opposition are saying that management of that sort is at present hopelessly inefficient. Otherwise, it makes no sense. If the Opposition are saying that management is hopelessly inefficient, or, which is, perhaps, an even worse slander, that it is not working as hard as it might if there were a reduction of 6d. in the standard rate, let them make it clear that this is what they are saying and that the situation would be transformed by such a reduction. I have not heard that suggestion by the Opposition.
When I refer to the dishonesty of the Opposition, I mean, in particular, the fact that they talk at one and the same time of a reduction in public expenditure. It is right that the country should ask precisely where the Tories would cut public expenditure if, at one and the same time, they would cut taxation. The Opposition tell us—it has not been sufficiently clearly spelled out—that they would reduce public expenditure on health and education by putting more of the burden on private expenditure. In other words, they would transfer some of the present public expenditure on these services to private consumption.
Let us be clear about it. I assume that the Opposition are not suggesting that, as a nation, we should reduce the amount of money we spend on health and education. Their suggestion is that more of it should be spent by the individual. If that is their suggestion, what they are really saying is that, by reducing the level of taxation for those in the very highest tax brackets, we should make things inevitably harder for those paying no tax at all, paying tax at the lower levels or even paying a small amount at the standard rate. That is the dishonesty of their argument.
Another argument is that we could have tax cuts if we had more savings, "As we did", they say, "in our 13 years". The hon. Member for Worcestershire, South gave some savings figures. I shall quote from the same document. In 1955–56. the total of National Savings was £6,115·5 million. In 1964–65, the total was £8,385·8 million. At first sight, that seems a worthwhile increase in total National Savings, about 37 per cent., but, unfortunately for that argument, between


1955 and 1965 retail prices rose by between 35 and 38 per cent. So there was no real increase in National Savings.
Both sides of the Committee constantly make appeals for an increase in the level of savings, particularly National Savings. Every Chancellor has said that, if we could increase National Savings, particularly small savings, we need not raise the level of taxation. I have myself advanced a similar argument from time to time. But, in considering the whole question of whether we can have a massive increase in savings in order to offset a tax reduction, we have to bear in mind the ingenuity of those who have looked at the problem in the past. Almost every possibility has been covered already. There is ease of purchase through the Post Office Savings Bank and the trustee savings banks. We have a small unit in the National Savings Certificate. Attractive "gimmicks" like the Premium Bond have been used, and there has been an increase in the number of Premium Bonds bought over the period. However, there has clearly been a great amount of switching. There has been no real increase in National Savings, taking the overall figures. There are many ways, apart from National Savings, by which people can save, life assurance and the like, and these would be less used if, for instance, there were a State unit trust.
It is, therefore, positively dangerous to suggest that we can have a massive reduction in taxation as a result of some new and ingenious form of saving. It could be foolish to rely on the hope of achieving massive new savings. Of course, one would hope to have an increase, but much would depend on general economic conditions. It is no use pretending that, by the wave of a magic wand, we can have increased savings and reduced taxation. It is just not on.
It would be wonderful if we could devise a new tax system at a level so low that it did not hurt and yet provided for all the public expenditure which both sides want while being fair, at the same time, to all sections of the community, including non-taxpayers. The Opposition certainly have not found such a system. Perhaps they are so naive as to believe their own words, perhaps they are so dishonest as to know that they are talking nonsense and misleading the public, as I believe they are, or perhaps they plan to

do what they say, that is, to have a tax system which would be demonstrably unfair to the great mass of the people. If this is what they are suggesting, they should make it clear. The Amendment is put forward on a totally dishonest argument, and it should be rejected.

Mr. Tim Fortescne: I do not want to detain the Committee for very long, but I feel bound to intervene briefly since at this time last year I intervened to support my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) when his Amendment did not have any support from our Front Bench. I am delighted that it has that support this year, especially as my entire election campaign at this time last year was fought on this very issue.
I am more delighted still to find that, despite what the hon. Member for Hey-wood and Royton (Mr. Barnett) has been telling us, the Amendment is also supported by the Government this year. According to my Sunday newspaper last weekend the Chancellor informed the country at large that between now and the end of the year—I quote from memory—every family in the country will have its standard of living raised.
I have been trying to puzzle out how that will happen by any other means except a reduction in the standard rate of Income Tax. That will not affect the families below Income Tax level, and I assume that he means that there will be a special arrangement for family allowances for low-income families, but no one else. But he was talking about every family in the country, and there seems to be no other way except reducing the standard rate.
There is talk of relaxation of hire purchase on cars and many other things, but these would affect only comparatively few families. The one way of increasing the standard of living of every family will be to go along with the Amendment. If that is what the Government will do, let me assure the Chancellor, if it will make the slightest difference to him, that he will have at least my full support.

The Deputy Chairman: Amendment proposed—

Mr. Iain Macleod: With respect, Mr. Irving, we are waiting for the Chancellor to speak on this. We cannot come to a conclusion on it without the Chancellor replying to the debate.

Mr. Callaghan: I shall be very willing to reply to the debate when it is concluded.

Mr. Macleod: It is not a question of when it is concluded. At that moment the Chair began to put the Question. If the Chancellor does not rise now the debate is concluded. He must surely give the benefit of his advice to the Committee.

Mr. Callaghan: I understand that there are still more hon. Members to speak.

The Chairman: Amendment proposed—

Sir G. Nabarro: I must press the Chancellor. I am not sure whether this is a calculated manoeuvre to avoid a reply from the Treasury Bench. I am only speaking for a second time in the debate in order to be able to give way to the Chancellor now, because no hon. Member rose on the Government benches and no hon. Member rose on the Opposition benches, and we are therefore pregnant with expectancy awaiting pronouncements from the Chancellor and notably further explanations of his deplorable speech at Leicester last Saturday. I give way to the Chancellor.

Mr. Callaghan: There is still to be another speaker from the Opposition Front Bench.

Mr. Iain Macleod: With great respect to the Chancellor, we are on the Committee stage. He knows that we can all speak many times. He has no prescriptive right to speak last and end the debate. If he is to have any courtesy to the House, he should speak at this point. Whether other people, including myself, follow him is not a matter for him. When the Chair puts the Question, as it was doing a moment ago, if the Chancellor dues not rise the debate would be concluded. It is mere-fore up to him now to give the Committee his reply.

Mr. Callaghan: I follow that, but I have been on more Finance Bills than the right hon. Gentleman has, and there has grown a tendency that the Government are never allowed to have the last words in these debates. If he looks up the record he will find that that is so. It is customarily the case that the Government concede the last word to the Opposition. It is not necessarily the case that

in an important debate of this sort if there are more arguments to be deployed the Government should concede the last word, as is the normal arrangement between the Front Benches. Frequently the Government have conceded the last word. If the right hon. Gentleman is saying that when I have sat down his hon. Friend intends to speak I am willing to deploy the arguments now, but I should like him also to consider the other aspects of the matter.

Mr. Iain Macleod: I do not want to get heated, but the Chancellor is wrong. It is not a question of conceding the last word or anything like that, nor can the Front Bench say—unless there be a Closure, which of course is not in anybody's thoughts in this debate—what will happen when anybody sits down. Each of us can speak as often as we like, subject to the good will of the Chair and ultimately of the Patronage Secretary.
8.45 p.m.
The Chancellor, who, I agree, has seen more Finance Bills than I have, is right in saying that sometimes the Government have the last word and sometimes not. But that is not so on the Committee stage. It is a matter perhaps for the Report stage, and certainly on the Second and Third Readings but it does not arise in Committee, when everyone can speak as often as they like.

Mr. Callaghan: It has been the case that when I was in opposition we often conceded the last word to the Government. If the Opposition do not want to do so on this occasion, I am happy to speak now, but I do want to register the fact that there are occasions when I or other Treasury spokesmen would expect the opportunity to have the last word.
As the right hon. Gentleman himself said, in a full year the Amendment would cost some £202 million. This year, it would cost £187 million. On any account, these are large sums of money. Amendment No. 19, put down by the hon. Member for Worcestershire, South (Sir G. Nabarro), would take 9d. off all the way round, not only off the standard rate but also off the reduced rate. I do not know whether that was his intention or not, but assuming that it was, the Amendment would cost £400 million in a full year and £360 million in 1967–68. If he intended to limit it to the standard rate,


we should be back to the figures of the Amendment moved by the right hon. Gentleman, because when the standard rate was last increased the reduced rates were not increased.
But, as both the right hon. Gentleman and the hon. Gentleman said, they were speaking more in the hope of making their arguments than in the belief that they would convert me suddenly this evening. I thought that my hon. Friends the Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon) made such a complete answer that there really is not a very great deal for me to add to what they said, but I shall add to a point which they did not fully bring out.
The point is that, when one makes a comparison of tax burdens in various countries, it is not enough just to compare Income Tax. That is only part of the picture. One must also consider other taxes and also the benefits. As my hon. Friends pointed out, Income Tax is only one of the many taxes paid by the ordinary citizen, and a reduction helps the ordinary wage earner very little. At £1,000 a year, which is the average wage, a reduction of 6d. in the standard rate of Income Tax alone would help the average wage earner to the tune of 3d. a week.
That means that one should look at alternative taxes which also bear heavily on the average wage earner as well as on the top wage earner and also at the benefits they are receiving. I want to say a word about these benefits because, if we are talking about reducing taxation, we should also consider the effect on the benefits the ordinary citizen is receiving.
There is a myth that this country is over-taxed. It is the same kind of myth under which the foreigner believes that every Englishman wears a bowler hat, carries an umbrella and has the Financial Times tucked under his arm. A number of citizens do but the great majority do not.
By any international comparisons that are made, taking the total burden of taxation, it is not true to say that the average citizen in this country, by reference to his opposite numbers in other countries, pays tax in excess of what they pay. A number of international comparisons

have been made, and I shall not go over them again. The average level of tax in this country on the average citizen is much the same as it is in comparable cases overseas—in some cases higher and in some cases lower.
I will come back to that later. For the moment I will deal with not just Income Tax and National Insurance, the direct payment of taxes paid by the ordinary citizen, but the benefits he gets. A study has been made and some of the results have been published. Taking into account the direct tax paid by the average citizen—that is, Income Tax and National Insurance—and putting against it the benefits received in the form of family allowances, National Insurance benefits, the Health Service, education, school meals, milk, welfare foods, education grants, the school health service and pensions, what are the broad conclusions?
I give them to the Committee now. I will take two average families, a married couple with one child and a married couple with two children. The married couple with one child and earning up to about £950 a year, or £18 5s. a week, receives more in benefits than it pays in Income Tax and National Insurance. A married couple with two children and earning up to £1,750 a year, or £33 10s. a week, receives more in benefits than it pays in Income Tax and National Insurance.
That has to be put against the cries which are being made for a reduction in the standard rate of tax. Whom will it benefit? The hon. Member for Worcestershire, South is honest and courageous. I respect him and like him. He always gives all the sides of an argument and tries to put in all the facts. He is absolutely honest. I must give him some sort of good character, because I have known him for many years. He wants to reduce the burden of taxation on the very rich man who earns his living. He is not so interested in the taxes on investment income, but he is very interested in relieving the direct taxation burden on a man earning £15,000 a year and upwards. That is honest and straightforward and I understand it. What I do not find so agreeable is the suggestion by the right hon. Member for Enfield, West (Mr. Iain Macleod) that this should be done by increasing the charges for school meals


and prescriptions. These were the two positive propositions which he put forward as a means of helping the £15,000 a year man.
Unlike those hon. Members who are interrupting me, I have sat through the debate. I know that the reserves have been drummed up in order that this great attack on the Government should look a little more respectable, but I have sat and listened to the debate. What the argument has come down to is that we must help the £15,000 a year man, and the only two positive propositions put forward are increasing the charges for school meals and prescriptions. That can be a point of view which can be sincerely and honestly held and argued. I am delighted that my hon. Friends and I do not share it. There may well be a case along the lines suggested by the hon. Gentleman—I shall not argue that for the moment—but it is not met by increasing taxation on the ordinary citizen who is having difficulty in meeting all his obligations.
The right hon. Member for Enfield, West said that we should tax consumption wherever possible. He means that to relieve the £15,000 a year man we should increase Purchase Tax and general taxes on consumption. That is a little ironical when one remembers the squawk he put up about Selective Employment Tax, because that is a tax which is designed to increase and widen the tax net by taxing services. The Opposition have squawked and squealed about it ever since it has been put into operation. Now hon. Members opposite come along and tell me that I should do more, that I should tax consumption to an even greater extent in order to help to relieve the £15,000 a year man. Whatever the case for the £15,000 a year man may be; I am very glad to be able to repudiate any suggestion that the Government would attempt to relieve his burdens, the burdens of the very wealthy, by reducing the standard rate, which would adversely affect the great majority of citizens and improve the lot of only a small minority. My comparisons of benefits bear that out.
There is a persistent argument between the hon. Member for Worcestershire, South and myself about effective rates of tax and marginal rates of tax. I believe that the effective rates of tax, especially for the kind of company direc-

otr of whom the hon. Member speaks, are of more importance than the marginal rates. I have forgotten what fantastic salary the hon. Gentleman said the managing director of General Motors received, but I think that it was 750,000 dollars. But it is a fixed salary. What matters to him is not the marginal but the effective rate of tax which he pays.
I agree that the marginal rate might matter to a distinguished surgeon, for example. We heard one speaking earlier this evening and he complained about the effect of tax upon him. I can well see that someone who has to decide whether to perform another operation is worth his while may say—although I doubt whether he does in fact—that he will not take on an additional operation, having calculated that the marginal rate of tax which he pays means that for cutting out a man's liver he will get only Is. 5d. I suppose that a distinguished surgeon might argue that way, but I do not believe that he would.
But that would not be true of company directors. Company directors engaged on a contract with fixed salaries and fixed remuneration are much more concerned, or at least should be, with the effective rates of tax and not with the marginal rates of tax on their salaries, because they do not get a little more salary if they do a little more, and that is why I stick to my argument that what matters to the group of people about whom the hon. Member for Worcestershire, South has been speaking is the effective rate.
Let us consider these effective rates. For a married man with three children and earning £1,000 a year the effective rate is 3½d. in the £, which means that he keeps 19s. 8½d. in the £. At £2,000 a year the effective rate is 3s. in the £, so that he spends 3s. and keeps 17s. of every £ he earns. At £5,000 a year—and we are here getting into high figures, for I would guess that there are only about 125,000 citizens in this country who get more than £5,000—the effective rate is 5s. 6d., so that the taxpayer is left with 14s. 6d. in the £. At £10,000 a year the effective rates is 8s., so that he is left with 12s. in the £. At £15,000 the effective rate is 10s. 7d. so that he is left with 9s. 5d.
At a time when we are being told of the poverty in our midst which has to be


relieved—and the right hon. and learned Member for St. Marylebone (Mr. Hogg) is not backward in telling us about this—it is monstrous, to use his own word, to say that the man on £15,000 a year should be regarded as hard done by when he keeps 9s. 5d. of every £ he earns. I agree that the marginal rate is much higher and I concede that to the hon. Member for Worcestershire, South, but the effective rate over all is not nearly as high as is commonly made out, widely believed, and propagated by the Opposition.
9.0 p.m.
My hon. Friend the Member for Ashton-under-Lyne and my hon. Friend the Member for Heywood and Royton did a good job in trying to simplify and make clearer what rates people actually pay, and there is a lot to be said for that. The Board of Inland Revenue is constantly applying its mind to this. My hon. Friends' Amendment was not called, and if it had been I would have had the dubious pleasure of pointing out that it would have had the effect of increasing taxation rather than keeping it as it is for the simple reason that if one taxes every £ at 6s. 5d. a man will obviously pay more tax if he is only given the amount of the personal allowances and not given the earned income relief. That was the technical difficulty about the Amendment, and I will gladly explain later if my hon. Friend would like me to. There is a great case for simplification here.
I come to another point, the question of the comparison of taxation between this country and elsewhere. I do not suppose that this speech will get rid of the myth, but it is a bad thing if the facts are not stated. This myth has persisted ever since the war and the facts ought to be stated so far as they are known. If one compares, as the international comparisons do, the yield from direct taxation on incomes, including social security contributions, as a percentage of the gross national product, the figure for this country is 18·4 per cent. That is the amount we paid in direct taxation as a percentage of the gross national product. In Belgium it is 19·8 per cent., in West Germany 23·3 per cent., France 24·7 per cent., Italy 19·2, and the Netherlands 26·5 per cent.
The Common Market average therefore is 22·7 per cent. This is not always true. I have taken another figure which is taxes as a percentage of gross national product at factor cost. Here we come out about halfway. The United States is the lowest at 30 per cent., Canada is 31 per cent., Britain 34·2 per cent., Italy 33·3 per cent., Belgium 33·4 per cent. Holland 37·6 per cent., West Germany 39·6 per cent., France 45·5 per cent.
These figures certainly do not support the claim that the United Kingdom is heavily taxed, at any rate by comparison with the Common Market countries. There might be a case for saying that we are more heavily taxed than the United States, but by comparison with the Common Market countries these figures, which I have from the O.E.C.D., certainly do not bear out a comparison of that sort. I acknowledge that these comparisons are extremely difficult to make.
Before I conclude by referring to what has been called the "brain drain," I ought to say one thing to the hon. Gentleman the Member for Worcestershire, South. The News of the World is a splendid paper, and I do not wish to get out order as he did, because I always like to keep in order with the Chair. The News of the World is a splendid paper, but unlike the hon. Gentleman I do not read the headlines to find out what the Government's economic policy is. I beg of him to read it for other purposes on a Sunday morning. If he likes, I will gladly send him a copy of my speech and, without getting out of order, I would merely say that what I was making in my speech was not an invitation to anyone and everyone to go for large increases in wages. It was a simple statement and, on the advice that I am getting, we can look forward both to a balance of payments surplus and to a growth rate of 3 per cent. during the coming year which means an addition of £1,000 million in real resources to the yield of this country. That is what I was saying.

Sir G. Nabarro: Sir G. Nabarro rose—

Mr. Callaghan: The hon. Gentleman was out of order. I am now getting out of order.

Sir G. Nabarro: This is not out of order. I gave way to the right hon.


Gentleman on two occasions. I said that the effects of the reports of the speech of the Chancellor of the Exchequer at Leicester last Saturday were deplorable. Can one deny that? "The freeze is over —Official", in screaming headlines: it is that which does the damage and which will cause every employee on 1st July to say, "The News of the World said that the freeze was over."

Mr. Callaghan: I put my oath on this. I do not believe that any wage earner will say that the headline last Sunday in the News of the World was "The freeze is Over". He will say that it was "My Private Life—by Jayne Mansfield". As the hon. Gentleman knows, I have to shoulder a number of burdens, but I cannot carry the burdens of the headline writers of the News of the World.
The right hon. Member for Enfield, West had something to say about my personal position. I do not object to it. He is entitled to attack me on my deficiencies in policy, even in a personal manner. I take no exception to it. But it is difficult to say that the Government have been short of ideas, considering that we have been attacked over the last two Budgets for all the ideas which we have produced. The Opposition complain that they have not been properly worked out, but I have never heard it suggested that we are long on metaphors but short on ideas.
Since the right hon. Gentleman made a very substantial criticism of me, let me reply with equal candour and equal good temper. He is a representative of a very big institution in the City of London. He told us that he has been in and around the Finance Bill for 20 years. I must tell him in all candour that this is what surprises his friends in the City of London—that having been around the Finance Bill for 20 years his speeches should still be so superficial and threadbare when compared with those of the right hon. Member for Barnet (Mr. Maudling). The right hon. Gentleman has a great deal to live up to if he is to achieve the reputation for economic knowledge and penetration of his right hon. Friend. However, I say that in exactly the same spirit in which he referred to me.
I come to the serious question of those at the top of the income scale who are bearing a heavy tax burden. The hon. Member for Worcestershire, South was

partly right when he referred, as he always does when giving the complete argument, to the fact that in the United States incomes are three times higher than they are in this country. This is the root cause of the problem. When we look at the facilities for research and development, and the opportunities which are offered to people in this very wealthy democracy—the most wealtiiy democracy in the world—teeming with natural resources and a tremendously fast-generated national income, it is perhaps not surprising that incomes and rewards there can be so much higher than they are in the United Kingdom, which, since the discovery of coal, has had no discovery of natural reseources, as far as I can remember, until we had the latest bit of luck with natural gas.
However, I do not think that the hon. Member for Worcestershire, South helps particularly by saying mat if only we would reduce taxation rates by 6d. or 9d. we should make up to the young men who are looking abroad—and the hon. Gentleman did not complain that they went abroad—for the sort of shortages inherent in living in a country like Britain which is poor in natural resources and does not have the wealth of the United States.
I would offer to these men a word other than that offered by the hon. Member for Worcestershire, Soudi. I do not complain about mem going, but I hope that they will go, and learn, and come back. This is what I would like to see them do. I would like them to come back with their great skill and brains and knowledge and help us to overcome the natural disadvantage which this country has against the great democracy of the United States. I would like them to help us get a faster rate of economic growth, and to get the better management that is needed in industry. I would like them to bring back some of the ideas which they have acquired, and the research which they have done, and apply them here. If the hon. Gentleman puts his proposition in that way, I am at one with him.
We are examining the problem of what is called the "brain drain". There are a number of factors in it. There has been set up under the chairmanship of somebody who is well known in private industry a working group of the Committee on Manpower Resources for Science and Technology. It is examining


what can be done both to encourage people to stay and to get those who have gone to return, and we are all waiting to see what the members will bring out from their practical experience, but if I had to give an interim report I would say that the problem comes down to the fact that the United States is a much wealthier country. They speak the same language, and this makes it easier for people who go there. We do not find many of our top executives cheerfully going to work in France, or that there is a "brain drain" to France, or to Italy, or to West Germany. I hope that there is some interchange, but it is not the same. The United States' problem is separate and unique.
There is a different attitude to young executives in United States' industry. It is much more willing to promote them earlier. There is a different approach to them, and I think that this is a factor in determining whether they go. These young executives can secure better careers over there because of the width of the opportunities open to them, and, as the hon. Gentleman said, salaries are vastly higher than here.
If one adds all that together one realises that there is a tremendous attraction for these people, and with great respect to the hon. Gentleman I do not believe that the advantages can be offset simply by reducing Income Tax in this country by 6d. in the £, especially when one puts against that the social cost which would be involved, the cost to which I have referred, and the additional burdens which it would be necessary to impose on the ordinary wage earner. It is for these social and economic reasons, as well as because of the loss of revenue which would be involved, that I must ask the Committee to reject the Amendment.

Mrs. Margaret Thatcher: I am grateful to the right hon. Gentleman for replying when he did and for letting us have the advantage of some of his thoughts on this subject. Perhaps I might follow him in one or two matters to which he referred. I cannot follow him in everything he said because he widened the debate considerably and we would be here for too long were I to do so.
My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said

last year, and he has consistently said this year, that £130 million would be available if the Chancellor did not repay the premiums under the S.E.T., so the right hon. Gentleman must take that into account in considering the Amendment.

Mr. Barnett: Surely the hon. Lady cannot regard the £130 million as of no value to industry? I go some way with her on this, but there is some advantage to industry in it.

Mrs. Thatcher: My right hon. Friend said that not all of it was needed for S.E.T. payments. If that money was added to the money which would accrue from the other suggestions made by my right hon. Friend there would be more than enough to pay for the cost involved in accepting the Amendment. If, in addition, £75 million was not made available to nationalise the steel industry, still more would be available. I do not think that the question of cost really enters into the argument. I was asked where the money would come from. My right hon. Friend has given a reply, and if one adds the figure to which I have just referred one sees that there is more than enough to meet the cost which is involved.
I come now to the burden of taxation. I agree with the Chancellor that at present this country is not the most heavily taxed if one considers the burden of taxation, although we are getting steadily more heavily taxed in relation to other countries the longer the Labour Government continue in office. A chart in The Times of Friday, 19th May, accompanying an article by Peter Jay, is an excellent advertisement for the years of Conservative Government. He shows that we were the only country, among Italy, the Netherlands, Germany, Sweden and France, which did not increase the burden of taxation between 1956 and 1964. Until 1964 we had the lowest burden of taxation of all those countries.
Nevertheless, in those years—and this relates to the Chancellor's point about social benefits—although we kept the burden of taxation below that of other European countries we raised the retirement pension on three occasions—once by 10s., again, in 1961, by 7s. 6d. and again, in 1963, by 10s. We also made increases in National Health Service benefits and education.
Although we kept the burden of taxation below that of other countries, because we provided incentives, we were able over the same period to reduce taxes and increase social service benefits. That is a significant point.

Mr. Eric S. Heffer: Ts not the hon. Lady aware that on one occasion, when there was an increase in the retirement pension, the sweet and tobacco concessions were removed and in the end the pensioners ended up with an increase of Is. 6d.?

9.15 p.m.

Mrs. Thatcher: The hon. Member cannot have heard the period I mentioned. It was the period in Peter Jay's article—1956 to 1964. The time to which the hon. Member is referring was before that. [n any case, the other increases of 7s. 6d. and 10s. were not affected. Over the same period we increased social service benefits, reduced taxes, and kept the general burden constant. The three are not inconsistent.
Some of the other figures given by the Chancellor can be comparatively easily reconciled if we get the classification of direct taxation and indirect taxation right. From the figures the Chancellor gave he adduced that Europe paid more in direct taxes than we did. But he classified as direct taxes those which are more often classified as indirect. For example, the whole of the employer's social service contribution is normally classified as an indirect tax. The Financial Secretary has constantly told us that S.E.T. was an example of an indirect tax, and the Richardson Report, to which the Chief Secretary also referred, when giving these figures also classified the payroll tax as a direct tax. More often it would be classified as an indirect tax. We must get our classifications right before we can compare figures.

Mr. Callaghao: I do not like to be accused of not giving the correct classifications. The hon. Lady can adopt what classifications she likes. I am adopting the classifications used by O.E.C.D. for its own purposes. I have not extracted any figures; I have merely produced the O.E.C.D. classifications and the answers.

Mrs. Thatcher: Then perhaps when we have further S.E.T. debates the Financial Secretary and other Front

Bench Members will not refer to it as an indirect tax, because on that basis it is a direct tax.
It would be easier if we did not resort to particular classifications, but took comparisons from the Chief Secretary's figures of direct tax on income. On 19th January, 1967 in col. 122 of the OFFICIAL REPORT, he gave figures of direct taxes on income in some of the countries listed, from which it emerged that Italy was the country with the lowest taxes on income, France was next lowest, Belgium next lowest, West Germany next lowest, we came fifth, and only the Netherlands had higher taxes on income. That largely negatives the Chancellor's point.
Among comments on the marginal rate of taxation and its effect on incentives, the hon. Member for Hey wood and Royton (Mr. Barnett) challenged whether taxation has any incentive effect or whether people would work harder if they paid less tax. In a letter to The Times on 1st April, Mr. Ronald Grierson, who, I understand, has accepted the D.E.A. appointment of Managing Director of the I.R.C., so cannot be an official spokesman for the Tory Party, said:
By far the biggest obstacle to the dynamic development of industry lies in the absurdly disincentive effect of present taxation levels on earned income.
I think that that was right—

Mr. Barnett: The hon. Lady is quoting an assertion by an individual. I quoted an objective survey by the Royal Commission in interviews with thousands of people.

Mrs. Thatcher: No, the Canadian Royal Commission also took extensive evidence, as the hon. Gentleman knows. He quoted from my right hon. Friend's quote from the Royal Commission on Canadian Taxation. I have a single volume of the eight or nine volumes here, in which we read:
We are persuaded that high marginal rates of tax have an adverse effect on the decision to work rather than enjoy leisure, on the decision to save rather than to consume, and on the decision to hold assets that provide monetary returns rather than assets that provide benefits in kind."—

Mr. Barnett: Mr. Barnett rose—

Mrs. Thatcher: No, I will not give way. The hon. Gentleman can read all this before his next speech in the Committee


and we shall have something to argue about. There are other volumes as well if he runs out of reading matter.
Many people concentrated on the marginal rates of tax, which, I admit, are extremely high and much higher here than anywhere else. They are also imposed at a lower income level. Many have referred to the level of tax which comes right into the ordinary Income Tax brackets with regard to minor management levels.
I want the Treasury to be able to check all these figures, so I am giving exact references. The Economist of 25th June did an analysis shortly after a similar debate in the Committee last year, comparing the net take-home pay or tax levels of people in various countries in specific jobs. It took it not at an ordinary exchange rate, but by rates which match equivalent purchasing power, and came to this conclusion:
Roughly, the point at which the British tax system becomes significantly more punitive than those of its main trading rivals is
—the income of £1,500 a year. It gave the main trading rivals as the United States, Germany and France.
I specified that, because it comes right into the middle income groups who often bear the burden of the increased taxes imposed by a Labour Government. No one should think that we concentrate in this debate only on the marginal levels. This is a debate about the middle levels of management and the middle income groups as well.
Few people have mentioned the importance of reducing Income Tax as it affects savings. People holding large savings and paying very much higher rates of tax pay a standard rate of 8s. 3d. in the £. Anyone with a reasonable income also

pays immediately the standard rate of tax on his first few pounds of savings. This is a considerable disincentive to savings. It is, of course, impossible to say, on the one hand, "I want more savings," but, on the other, to insist that they are taxed very highly.

I do not want to detain the Committee too long—[An HON. MEMBER: "Why not?"] I must remember the next Amendment. There are many psychological factors here. We do not say that the Amendment would work wonders immediately, or do all that is required. However, the argument of the Government is to the effect that there could never be a case for reducing Income Tax because such a reduction would always benefit those who have more. I suggest that the psychological effect of the reduction which we are proposing would be tremendous, particularly since the Labour Government have become synonymous with the "high tax party". Having listened to the remarks of the Chancellor tonight, I fear that hon. Gentlemen opposite will become known as members of the "higher and higher yet tax part".

The Government and the country would get a tremendous boost if the Amendment were accepted, because it would mean that people would get a little more. The Chancellor would then find it possible to achieve growth and improve our social services, just as we did during our 13 years of office. [Laughter.] It is obvious, from the attitude of hon. Gentlemen opposite, that it is about time we voted on this issue to show how strongly my hon. Friends and I feel about it.

Question put, That "8s. 3d." stand part of the Clause:—

The Committee divided: Ayes 218, Noes 140.

Division No. 346.]
AYES
[9.26 p.m.


Abse, Leo
Blackburn, F.
Castle, Rt. Hn. Barbara


Allaun, Frank (Salford, E.)
Booth, Albert
Coleman, Donald


Alldritt, Walter
Boston, Terence
Concannon, J. D.


Allen, Scholefield
Boyden, James
Corbet, Mrs. Freda


Anderson, Donald
Braddock, Mrs. E. M.
Craddock, George (Bradford, S.)


Archer, Peter
Bray, Dr. Jeremy
Cronin, John


Atkins, Ronald (Preston, N.)
Brooks, Edwin
Cullen, Mrs. Alice


Atkinson, Norman (Tottenham)
Brown, Hugh D. (G'gow, Provan)
Dalyell, Tam


Bagier, Gordon A. T.
Brown, R. W. (Shoreditch &amp; F'bury)
Davidson, Arthur (Acorington)


Barnes, Michael
Buchanan, Richard (G'gow, SP'burn)
Davies, Dr. Ernest (Stretford)


Barnett, Joel
Butler, Herbert (Hackney, C.)
Davies, G. Elfed (Rhondda, E.)


Baxter, William
Butler, Mrs. Joyce (Wood Green)
Davies, Harold (Leek)


Beaney, Alan
Callaghan, Rt. Hn. James
Davies, Ifor (Cower)


Bence, Cyril
Cant, R. B.
Davies, S. O. (Merthyr)


Bennett, James (G'gow, Bridgeton)
Carmichael, Nell
Dell, Edmund


Bidwell, Sydney
Carter-Jones, Lewis
Dempsey, James




Diamond, Rt. Hn. John
Jones, T. Alec (Rhondda, West)
Parkyn, Brian (Bedford)


Dickens, James
Kelley, Richard
Pavitt, Laurence


Dobson, Ray
Kerr, Dr. David (W'worth, Central)
Pearson, Arthur (Pontypridd)


Doig, Peter
Kerr, Russell (Feltham)
Pentland, Norman


Donnelly, Desmond
Lawson, George
Perry, George H. (Nottingham, S.)


Driberg, Tom
Ledger, Ron
Price, Christopher (Perry Barr)


Dunn, James A.
Lee, Rt. Hn. Frederick (Newton)
Price, Thomas (Westhoughton)


Dunnett, Jack
Lee, John (Reading)
Price, William (Rugby)


Eadie, Alex
Lestor, Miss Joan
Probert, Arthur


Edwards, Rt. Hn. Ness (Caerphilly)
Lever, L. M. (Ardwick)
Rankin, John


Edwards, William (Merioneth)
Lewis, Arthur (W. Ham, N.)
Reynolds, G. W.


Ellis, John
Lewis, Ron (Carlisle)
Roberts, Albert (Normanton)


Ensor, David
Lipton, Marcus
Roberts, Goronwy (Caernarvon)


Evans, Ioan L. (Birm'h'm, Yardley)
Loughlin, Charles
Robinson, w. O. J. (Walth'stow, E.)


Faulds, Andrew
Luard, Evan
Rose, Paul


Fernyhough, E.
Lyon, Alexander W. (York)
Ross, Rt. Hn. William


Finch, Harold
Lyons, Edward (Bradford, E.)
Rowland, Christopher (Meriden)


Fitch, Alan (Wlgan)
Mabon, Dr. J. Dickson
Rowlands, E. (Cardiff, N.)


Fletcher, Raymond (Ilkeston)
McBride, Neil
Ryan, John


Fletcher, Ted (Darlington)
McCann, John
Sheldon, Robert


Foley, Maurice
MacDermot, Niall
Shore, Peter (Stepney)


Foot, Michael (Ebbw Vale)
Macdonald, A. H.
Short, Rt. Hn. Edward(N'c'tle-u-Tyne)


Ford, Ben
McGuire, Michael
Short, Mrs. Renee(W'hampton, N. E.)


Forrester, John
McKay, Mrs. Margaret
Silkin, Rt. Hn. John (Deptford)


Fowler, Gerry
Mackenzie, Gregor (Rutherglen)
Silkin, Hn. S. C. (Dulwich)


Gardner, Tony
Maclennan, Robert
Silverman, Julius (Aston)


Ginsburg, David
McMillan, Tom (Glasgow, C.)
Slater, Joseph


Gray, Dr. Hugh (Yarmouth)
McNamara, J. Kevin
Small, William


Gregory, Arnold
MacPherson, Malcolm
Spriggs, Leslie


Griffiths, David (Rother Valley)
Mahon, Peter (Preston, S.)
Stewart, Rt. Hn. Michael


Griffiths, Rt. Hn. James (Llanelly)
Mahon, Simon (Bootle)
Swingler, Stephen


Griffiths, Will (Exchange)
Manuel, Archie
Symonds, J. B.


Hale, Leslie (Oldham, W.)
Mapp, Charles
Taverne, Dick


Hamilton, James (Bothwell)
Marquand, David
Thornton, Ernest


Hamling, William
Mendelson, J. J.
Tinn, James


Hannan, William
Millan, Bruce
Varley, Eric G.


Harper, Joseph
Miller, Dr. M. S.
Wainwright, Edwin (Dearne Valley)


Harrison, Walter (Wakefield)
Mitchell, R. C. (S'th'pton, Test)
Walden, Brian (All Saints)


Haseldine, Norman
Moonman, Eric
Walker, Harold (Doncaster)


Hazcll, Bert
Morgan, Elystan (Cardiganshire)
Wallace, George


Hoffer, Eric S.
Morris, Alfred (Wythenshawe)
Watkins, David (Consett)


Henig, Stanley
Morris, Charles R. (Openshaw)
Weitzman, David


Herbison, Rt. Hn. Margaret
Moyle, Roland
Wellbeloved, James


Hilton, W. S.
Neal, Harold
Wells, William (Walsall, N.)


Hobden, Dennis (Brighton, K'town)
Newens, Stan
Whitaker, Ben


Hooley, Frank
Norwood, Christopher
White, Mrs. Eirene


Horner, John
Ogden, Eric
Whitlock, William


Howarth, Harry (Wellingborough)
O'Malley, Brian
Williams, Alan (Swansea, W.)


Howarth, Robert (Bolton, E.)
Orme, Stanley
Williams, Alan Lee (Hornchurch)


Howie, W.
Oswald, Thomas
Williams, Clifford (Abertillery)


Hoy, James
Owen, Dr. David (Plymouth, S'tn)
Willis, George (Edinburgh, E.)


Hughes, Roy (Newport)
Owen, Will (Morpeth)
Winnick, David


Irvine, A. J. (Edge Hill)
Padley, Walter
Winterbottom, R. E.


Jackson, Colin (B'h'se &amp; Spenb'gh)
Page, Derek (King's Lynn)
Woodburn, Rt. Hn. A.


Jeger, Mrs. Lena (H'b'n &amp; St. P'cras, S.)
Paget, R. T.



Jenkins, Rt. Hn. Roy (Stechford)
Palmer, Arthur
TELLERS FOR THE AYES:


Johnson, Carol (Lewisham, S.)
Panned, Rt. Hn. Charles
Mr. Charles Grey and


Jones, J. Idwal (Wrexham)
Park, Trevor
Mr. Ernest Armstrong.




NOES


Alison, Michael (Barkston Ash)
Clark, Henry
Grant-Ferris, R.


Astor, John
Cooke, Robert
Gresham Cooke, R.


Awdry, Daniel
Costain, A. P.
Griffiths, Eldon (Bury St. Edmunds)


Baker, W. H. K.
Craddock, Sir Beresford (Spelthorne)
Grimond, Rt. Hn. J.


Bennett, Dr. Reginald (Gos. &amp; Fhm)
Crosthwaite-Eyre, Sir Oliver
Gurden, Harold


Biffen, John
Dalkeith, Earl of
Hall-Davis, A. G. F.


Birch, Rt. Hn. Nigel
Dance, James
Hamilton, Marquess of (Fermanagh)


Black, Sir Cyril
Davidson, James(Aberdeenshire, W.)
Harris, Frederic (Croydon, N. W.)


Blaker, Peter
d'Avigdor-Coldsmid, Sir Henry
Harrison, Col. Sir Harwood (Eye)


Body, Richard
Dean, Paul (Somerset, N.)
Hawkins, Paul


Boyd-Carpenter, Rt. Hn. John
Deedes, Rt. Hn. W. F. (Ashford)
Heald, Rt. Hn. Sir Lionel


Boyle, Rt. Hn. Sir Edward
Digby, Simon Wingfield
Heseltine, Michael


Brewis, John
Elliott, R. W. (N'c'tle-upon-Tyne, N.)
Higgins, Terence L.


Brinton, Sir Tatton
Eyre, Reginald
Hirst, Geoffrey


Bromley-Davenport, Lt.-Col. Sir Walter
Fair, John
Hogg, Rt. Hn. Quintin


Brown, Sir Edward (Bath)
Fisher, Nigel
Holland, Philip


Buck, Antony (Colchester)
Galbraith, Hn. T. G.
Hordern, Peter


Bullus, Sir Eric
Gibson-Watt, David
Hunt, John


Burden, F. A.
Cilmour, Ian (Norfolk, C.)
Jenkin, Patrick (Woodford)


Campbell, Gordon
Gilmour, Sir John (Fife, E.)
Jopling, Michael


Carlisle, Mark
Glover, Sir Douglas
King, Evelyn (Dorset, S.)


Channon, H. P. G.
Cower, Raymond
Kirk, Peter


Chichester-Clark, R.
Grant. Anthony
Lancaster, Col. C. G.







Langford-Holt, Sir John
Nicholls, Sir Harmar
Taylor, Sir Charles (Eastbourne)


Legge-Bourke, Sir Harry
Onslow, Cranley
Taylor, Frank (Moss Side)


Lloyd, Ian (P'tsm'th, Langstone)
Orr-Ewing, Sir Ian
Temple, John M.


Longden, Gilbert
Osborn, John (Hallam)
Thatcher, Mrs. Margaret


Loveys, W. H.
Page, John (Harrow, W.)
Turton, Rt. Hn. R. H.


Lubbock, Eric
Pearson, Sir Frank (Clitheroe)
Wainwright, Richard (Colne Valley)


McAdden, Sir Stephen
Percival, Ian
Walker, Peter (Worcester)


MacArthur, Ian
Pink, R. Bonner
Walker-Smith, Rt. Hn. Sir Derek


Mackenzie, Alasdalr (Ross &amp; Crom'ty)
Pounder, Rafton
Walters, Dennis


Macieod, Rt. Hn. Iain
Pym, Francis
Ward, Dame Irene


McMaster, Stanley
Quennell, Miss J. M.
Weatherill, Bernard


Maddan, Martin
Ronton, Rt. Hn. Sir David
Webster, David


Maginnis, John E.
Robson Brown, Sir William
Wrritelaw, Rt. Hn. William


Marten, Neil
Rossi, Hugh (Hornsey)
Wiltt, Sir Gerald (Bridgwater)


Mawby, Ray
Royle, Anthony
Wilson, Geoffrey (Truro)


Maydon, Lt.-Cmdr. S. L. C.
Russell, Sir Ronald
Winstantey, Dr. M. P.


Mills, Peter (Torrington)
Scott, Nicholas
Wolrige-Gordon, Patrick


Mills, Stratton (Belfast, N.)
Sharples, Richard
Wood, Rt Hn. Richard


Monro, Hector
Shaw, Michael (Sc'b'gh &amp; Whitby)
Woodnutt, Mark


Montgomery, Fergus
Smith, John
Worsley, Marcus


Morrison, Charles (Devizes)
Stainton, Keith
Wright, Esmond


Munro-Lucas-Tooth, Sir Hugh
Steel, David (Roxburgh)



Murton, Oscar
Stoddart-Scott, Col. Sir M. (Ripon)
TELLERS FOR THE NOES:


Nabarro, Sir Gerald
Summers, Sir Spencer
Mr. Jasper Moreand


Neave, Airey
Tapsell, Peter
Mr. David Mitchell

Clause ordered to stand part of the Bill.

Clause 14.—(SURTAX RATES FOR 1966–67.)

Mr. John Boyd-Carpenter: I beg to move Amendment No. 22, in page 16, line 39, to leave out '£2,000' and to insert '£5,000'.

The Deputy Chairman (Mr. Sydney Irving): With this Amendment the Committee may discuss the following Amendments: No. 23 in line 40, leave out from 'excess' to end of Clause and add:
On the first £2,000 of the income chargeable to surtax—Nil.
On the next £500 of the income chargeable to surtax up to £2,500 at 2s. 0d. in the £.
On the next £500 of the income chargeable to surtax up to £3,000 at 2s. 6d. in the £.
On the next £1,000 of the income chargeable to surtax up to £4,000 at 3s. 6d. in the £.
On the next £1,000 of the income chargeable to surtax up? to £5,000 at 4s. 6d. in the £.
On the next £2,500 of the income chargeable to surtax up to £7,500 at 5s. 0d. in the £.
On the next £2,500 of the income chargeable to surtax up to £10,000 at 5s. 6d. in the £.
On the next £2,500 of the income chargeable to surtax up to £12,500 at 6s. 0d. in the £.
On the next £2,500 of the income chargeable to surtax up to £15,000 at 6s. 9d. in the £.
On the remainder of the income at 7s. 6d. in the £.
No. 24, in line 40, leave out from ' at' to end of Clause and add:

'nine-tenths of the higher rates in respect of the excess as were charge for the year 1964–65.

No. 25, in page 17, leave out lines 1 to 3.

Mr. Boyd-Carpenter: This Amendment and those in the names of my hon. and right hon. Friends which follow are intended to raise one aspect of the question of the level of direct personal taxation which we discussed more broadly on the previous body of Amendments. These Amendments relate to Surtax. I hope we may be able to have a discussion of the effects of high rates of Surtax beginning at a very low income level in their general effects on the economy. All these Amendments raise in somewhat different forms and shapes the question as to whether the present level of Surtax and the present point of entry to it is a sensible level from the broad national point of view.
The Amendment in my name seeks to raise the point of entry in respect of both earned and unearned income from the present level of £2,000 to £5,000 a year. I think it is on the face of it a moderate proposal when one recognises that the £2,000 level was fixed as long ago as the early 1920s. The Chief Secretary is in a better position than I am, but I think any hon. Member will be able to calculate that to have the same purchasing power as £2,000 a year had in the early 1920s we would have to move to a substantially higher figure than the one I have envisaged in my Amendment.
One of the difficulties about Surtax has been that every year the combined effect of the fall in the value of money


and the related rise in money incomes has been to cause Surtax to bite lower down the income scale and more sharply. No one, with the single and very honourable exception of my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), has touched it over the years. My right hon. and learned Friend in respect of earned income provided that tax should not be payable below the level of £5,000. Even my right hon. and learned Friend's moderate provision provided that, in respect of earned incomes above that level, the amount of Surtax paid should be based upon the assumption that Surtax had been payable below the £5,000 mark. The effect of my Amendment would be to move the entry point for earned and unearned income alike to £5,000.
I will just comment, if only for the purpose of anticipating comment, on the criticism which will no doubt be made of the advantage given in respect of unearned income. I have always thought that the expression "unearned income" is a singularly inapposite one. I will give the Committee one example. If someone works for an employer who has a pension scheme and if he gets a pension at the end of the day, that pension is classified, rightly, as earned income. If a similar person builds up a small business—let us say he runs a shop—and if on reaching the age at which he can no longer run it he sells it and lives on the income resulting from the sale, that income, though it is, in truth, the result of a life's work, is taxed as unearned income. I have often thought that the expression "unearned income" is not only perhaps somewhat pejorative but is also a singularly inaccurate description of what, not in all cases, but in a great many cases, is income which has been earned—the income fiom savings accumulated, perhaps, over a working life.
I therefore make no apology for proposing that, in respect of both these types of income, earned and unearned alike, we should move, not back to the point in terms of purchasing power fixed in the 1920s, but some way at any rate back towards that.
My right hon. and hon. Friends will no doubt speak to their Amendments. When we have heard the debate, we shall be able to decide whether to vote on any or each of them. I want at this stage to

try to have some discussion on the effect of the prevailing rates of Surtax on the whole life and texture of our economy.
On the previous Amendment, the Chancellor of the Exchequer made great play with the fact that, if he lost the revenue of which that Amendment would have deprived him, other sources would have to be found or economies made. I have never regarded it as the duty of an Opposition in proposing a reduction in taxation necessarily to advise the Government how to make up the loss. However, in this case I would say that, if the Chief Secretary is seriously worried about the financial consequences of this proposal to the balance of his Budget, there are two answers available to him.
One answer is to pay out less by way of premium on S.E.T. The premium on S.E.T. is designed as a stimulus, no doubt, for industry. I think that it is a singularly ill-designed one; but you, Mr. Irving, would rule me out of order if I went further on that aspect. I would only argue that the stimulus which this batch of Amendments offers is, in my view, a very much more effective one than that offered by the money laid out in S.E.T. premium.
The second and, if the Committee wishes, alternative method of making up the gap is almost too obvious to need arguing. If a substantial relief is given on Surtax, there will undoubtedly be a substantial increase in savings. We have heard from the Chancellor—I think that he said it last year—that savings were, from a budgetary point of view, the equivalent of taxation.
I come to the effects of the tax. I think that the Committee will agree that modern economic thinking is moving more and more away from the straight Keynsian doctrine that it was the totality of taxation that mattered in its impact on the economy to the more sophisticated approach that it is not merely the amount of taxation but the way in which the money is raised that has significant economic effects.
Any given sum of money can be raised by way of taxation by different taxes with profoundly different economic effects.
9.45 p.m.
It is the purpose of my argument to show that the money raised by Surtax, at least at the present level, is raised in


about the most damaging way for the whole life, vitality and enterprise of the economy. Part of our trouble—I hope that you will not rule me out of order if I say this, Mr. Irving—has been that our taxes have not been devised with this concept anything like sufficiently in mind. I think that this results from our having no taxation division in the Treasury. Our taxation is devised basically on the advice of the Inland Revenue and the Customs, honourable Departments concerned to raise honourably and efficiently large sums of money, but not Depart-mentally interested in the economic repercussions of raising the necessary revenue in any particular way. This is, I suggest, a weakness in the Treasury machine, and I think that the point is highly pertinent, though I pass quickly from it now in order not to incur your displeasure, Mr. Irving.
I am helped on this part of the argument by the fact that Surtax is not a great revenue raiser. In 1966–67, the total estimated yield was £248 million. The actual out-turn was £242 million, about 7 per cent, of the yield of Income Tax and less than a quarter of the yield of the tobacco duty—important, of course, but secondary.
The case for Surtax is more often argued in the House on social rather than on fiscal grounds. The Chancellor of the Exchequer has been something of an offender in this respect, being apt to say, when arguing about Surtax, that it is paid by those who can well afford it. There is a social argument on these lines—it would be silly to deny it—but it is a social argument which can be dangerously overworked. There was a powerful though short letter in The Times a few months ago saying substantially this: if we tax heavily the high earners and give the proceeds to the low earners, two things happen; the high earners go and the low earners come. That is a powerful summary of the dangers if we carry this kind of tax too far.
Before I come to my main argument, there is an independent point here which is worthy of consideration. I refer to the effect of Surtax and aggregation for Surtax purposes of the incomes of married people, particularly of highly educated and able married women. There quickly

comes a point, when a woman is married to a man also with substantial earnings, at which her additional earnings are almost a nuisance because, being aggregated, they push the married couple into very high tax brackets and they are both inclined to think it is not worth the trouble.
There is a loss to the community here, particularly in the case of highly educated women who have brought up their children and who could return, probably to a high level of responsibility, if there were some financial inducement to do so. What is so paradoxical about this rule is that if the married couple are divorced and live in what is even nowadays still described as sin their incomes are not aggregated. Incomes are not aggregate if brothers and sisters or parents and children live together, but they are in respect of married couples. This is a small but distinct point. It affects only a few, but it affects a useful and significant body of people, and it is one of the consequences of high overriding levels of Surtax.
I come now to the effect on the economy as a whole, the effect which operates through many of the ablest members of our society by the discouragement of the taking on of extra responsibilities or the making of extra efforts. Our practice in this country in this respect is very different from that of our main competitors. On the previous Amendment, the Chancellor of the Exchequer gave us an interesting though somewhat slanted disquisition on the comparison between the general level of taxation in other countries and in this. As my hon. Friend the Member for Finchley (Mrs. Thatcher) so well-pointed out, his figures were grossly over-weighted by his use of insurance contributions on the side of the equation which represents the level of the continental countries.
Apart from the point she made, these insurance contributions are, broadly speaking, regressive and therefore, although in many of these countries the total level of direct taxation on incomes may approach our own, that results from the fact that they concentrate a large part of their taxation on incomes at the lower levels where there are a lot of people and where a lot of money is raised. But there is not the effect that we get here of the highly concentrated taxation on the higher levels of income.
In order to furnish myself with figures, I asked the Chancellor a Question on 7th March, and his Answer appears at cc. 1252 and 1253 of the OFFICIAL REPORT, for that date. I asked him how much of his income—earned income only—a married man with two children retained as a proportion of the total above certain levels. The Answers I was given make my point, that in this respect we are far and away different to, and worse than, our rivals.
The Committee will have in mind the relevant figures of the percentage of income retained—the marginal rate, if one likes—above certain levels by such a man. Up to about the £8,500-a-year level, although we are worse than everybody except Japan, the distinction is not all that great. But once one comes to the £10,000-a-year level the figures are very striking. The Englishman at that level retains 26·25 per cent. of his earnings; the American 41·6 per cent.; the Frenchman 60·4 per cent.; the West German 52·9 per cent.; and even the Japanese retains 36 per cent.

Mr. Diamond: Will the right hon. Gentleman clarify what he is saying? Is he talking about the marginal rate, that is, what is retained on the next £ above £10,000?

Mr. Boyd-Carpenter: Yes. I had used the expression "marginal rates". This is the amount of income retained above certain levels as a proportion of the total above those levels.
When one gets to £15,000 the figures are very striking. The Englishman retains 16·25 per cent.; the American more than twice that—37·6 per cen.; the Frenchman more than three times—53·2 per cent.; the German just about three times—49·8 per cent.; and the Japanese very nearly double, at 30 per cent. All these countries are not fools. It is for the Government, who insist on maintaining this quite different level in this country, to justify it. The onus is on them to show that everybody is out of step except our Jack. The practice of foreign countries is very relevant.
I should add this further qualification. The right hon. Gentleman noted that in giving this Answer he had done two or three very strange things, which I imagine make the real position even

worse than he told us. For example, he said that for this purpose he ignored our own 10 per cent. surcharge on Surtax but had taken into account the 6 per cent. American Vietnam surcharge, and he had treated the rate of exchange as five dollars to the £ for this purpose. None of those factors, even though they may operate to obscure the position, prevent it from being very clear that at these higher levels we charge very much more tax and leave the taxpayer with much less of his income than any other country by enormous margins.
It is no use the Government saying, if they want to, that this does not matter because people at these incomes do not matter. That would be sheer hypocrisy. The party opposite includes a number of very rich men, and, more than that, the Minister of Power has, absolutely rightly, offered salaries far in excess of those I have quoted, running into £20,000 a year, in order to get the right men to run his new National Steel Corporation. Therefore, the Government must accept that incomes of this sort are not only justifiable in a modern society but that those who earn them play a useful part in the effective working of that society.
One of the effects of our discriminatory treatment is undoubtedly the brain drain. On Second Reading, I recalled to the House the extraordinarily striking comment on the way the brain drain works by Professor Titmuss in his address to the National Conference on Social Welfare. I want to quote what he said, and I remind the Committee that, whatever else he may be known for, the Professor is not known for his enthusiasm for Tory policy. The report of his address said:
After all, what could social workers be expected to do about 100,000 doctors, scientists and engineers which, Professor Titmuss told us, the United States had absorbed, and to some extent deliberately recruited, since 1949?
The Americans would, he said, have saved some $4,000 million (£1,400 m.)"—
he used the more conventional rate of exchange—
by not having to educate or train, or train fully, this vast quantity of human capital. They had spent more on consumption goods, less on public services. They had taxed themselves more lightly while imposing heavier taxation on poorer countries.
Precisely. It is just because the Americans offer to ability the opportunity to retain


a larger proportion of what ability can earn, particularly in the higher brackets, that this immense volume of ability has proceeded to the United States, with the curious result, as Professor Titmuss was right to emphasise, of a great saving to the United States in the training of these people and a great loss to the countries which trained them and then, having trained them, sought to tax them exorbitantly.
I recall to the Chancellor the solemn warning given as long ago as 21st October last by the Governor of the Bank of England when, as reported in The Times, he pointed out that our burdens of taxation were excessive and were having a harmful effect on the economy.
That being so, what good are we doing in this country by maintaining these very high rates of taxation? We are not raising any vast sums of revenue. As I have mentioned, the whole yield of surtax, though important, is not one of the major factors. But surely it is common experience that it is increasingly difficult adequately to reward up and coming young executives and technicians, virtually impossible to make financial provision which would make it worth while for them to move, for example, from the North to London or from London to the North. It is increasingly difficult, as my right hon. Friend said earlier, to get a properly ranged hierarchy of salaries in any great organisation if net income is what is considered. I do not think it is chance that, under this burden of taxation, there is a listlessness and apathy and lack of zip in the economy—and all to raise not very large sums of money.
What is to happen, too, if we go into Europe? My right hon. Friend has already referred to this in relation to Income Tax, but the point is even sharper here. As the Committee knows, it is an obligation under the Treaty of Rome to achieve some measure of equality in national taxation. It is also a necessary condition of common sense, because once under the Treaty there is free movement of persons and capital it will be impossible to maintain widely differing rates of taxation of this kind on individuals in one country of the Community as compared with the others.

People will be free to take their capital and their business with them with disastrous consequences to the country which they leave.
I asked the Chancellor the other day whether he was making preparations to adjust our tax system on the basis of our entering Europe. He told me that preparations were being made.

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress.

BUSINESS OF THE HOUSE

Ordered,
That the Proceedings on the Motion relating to the Post Office (Data Processing Service) Bill may be entered upon and proceeded with at this day's Sitting at any hour, though opposed.—[Mr. Harold Walker.]

FINANCE (No. 2) BILL

Again considered in Committee.

Mr. Boyd-Carpenter: I suggest that one of the first steps the Government will be bound to take will be to move our higher levels of direct taxation down towards the European level. I hope that the right hon. Gentleman will tell us something about this, because it is hopeless to try to persuade people that we are sincere in our desire to enter the European Community if we insist in maintaining different levels of taxation which will be inconsistent with membership of the Community.
I have presented the case against these high levels of direct taxation on the basis of their effect on our economy. I hope that we will not have from the right hon. Gentleman the sort of claptrap which we had from the Chancellor previously, about how these people can afford it and how we should consider other needs more greatly on a compassionate ground without addressing himself to the point that I am seeking to make. It is in the interests of all of us that our economy should work better, that we should attain not the somewhat fictional 3 per cent. growth rate which the Chancellor foreshadows, but an effective growth rate over many years and that we should get back to the state of affairs which we knew under Conservative Governments when a rising national product sustained at the


same time increased social benefits and lower levels of taxation.
If my argument is right that one of the things—and it is only one—which is holding us back is this specially high level of direct taxation on higher incomes, which we alone in the world impose on key people in this country, then it is in the interests of all sections of our community that we should put it right. This is the argument which, right or wrong, I am submitting to the judgment of the Committee. I hope that we can have a debate on these lines and not allow ourselves to be diverted by suggestions that other people are worse off and that these people do not matter as they can afford it. This is not addressed as a compassionate case. It is addressed as a practical one on the working of our economy and on nothing else.
On Saturday, the Chancellor of the Exchequer said that the time had come for a measure of reflation. If part of that reflation were given in this way, we would get an expansion and drive and improvement which would surprise the Committee.

Mr. Iain Macleod: On a point of order. It would be helpful if you could tell us, Sir Eric, whether, at the appropriate time, you will be prepared to call Amendment No. 24 for a separate Division.

The Chairman: I am much obliged to the right hon. Gentleman. My intention was to enable the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) to call a Division on Amendment No. 22, if he so desired, and also to enable a Division to be called on Amendment No. 24.

Sir G. Nabarro: In my experience, since 1950, which is 17 years ago, no Tory Member has sought the reduction of Surtax, save only when, in the early 1960s. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) put the commencing level of Surtax, although in a devious and complex way, up to £5,000 from the original commencing level of £2,000, for earned income purposes only—and I shall deal later with the unfortunate contradistinction between earned and unearned income.
The fact is that the total of direct taxation in this country under a Socialist Government has now achieved a ludicrous

and confiscatory level. Any additional effort which a top professional man, rewarded at £15,000 a year or more, is called upon to make results in 9d. in the £ for him and 19s. 3d. in the £ for the Treasury. Next year, it will be Is. 9d. in the £ for him and 18s. 3d. in the £ for the Treasury.
Sir Myer, your predecessor in the chair listened to me saying that my Amendment on Income Tax, grouped earlier with the official Tory Party Amendment on Income Tax, was designed to reduce the standard rate to 7s. 6d. My Amendment on Surtax, which includes a large table of figures, Amendment No. 23, provides for a top level of Surtax over £15,000 a year at 7s. 6d. in the £, so that nobody in Britain would be called upon to pay more than an aggregation of 15s. in the £. Even at that level, with the exception of one or two small and insignificant countries, we would be the highest taxed nation in the world in terms of direct taxation—with the exception of one or two small and insignificant countries.
I am glad to see that the Solicitor-General is muttering. I used the term "insignificant" to make him mutter, because I am not prepared for Britain to be compared with Albania; he probably is. I compare Britain with the United States of America, which is the only valid comparison in this context.
Of course, the Chancellor can prattle away, as he endlessly does, about the huge natural resources of the United States of America and how Britain had only a little coal and now, fortuitously, has a little natural gas. We were all taught that in the fourth form. That is not the question. Britain's place in the world and the level of her exports depends, largely on the inventive genius and the skills and the capacity for hard work of her men and women, properly led. Who are the people who lead them? The people in the highest Surtax brackets. Otherwise, they would not be there.
It seems to be a Socialist conception, and part of their wretched philosophy, that people are paid £15,000 and £20,000 a year in industry for sitting on their fat bottoms for four hours a day in a plushy office, and contributing little or nothing by way of leadership to their companies, or by way of expansionist policies, or the kind of executive ability that we on this


side of the House recognise should command these high rewards.
I am very proud to be associated this year with my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), an ex-Financial Secretary to the Treasury, and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who are seeking the same general purpose, which is, by reduction of top levels of direct taxation, to furnish greater incentives.
My right hon. Friend the Member for Kingston-upon-Thames, in his admirable speech, sought to lift the commencing level from £2,000 to £5,000 a year. My right hon. Friend the Member for Enfield, West, in an equally admirable conception, although I do not like it as well as my own, of course, seeks to reduce the scale of Surtax throughout by 10 per cent. I do not seek to do that. I seek to compress the levels of Surtax between the limits of £2,000 and £15,000 in terms of the rates applicable, and with the precise objective that the total overall, the highest rate of Income Tax and Surtax combined, would always leave in the pocket of the taxpayer 5s. in the £ on what he is earning.
The taxpayer earns it invariably by the sweat of his brow and his capacity to lead and his ability as an executive. In all my experience in industry I have never found any of these top level men to be overpaid. They go to an early grave for the most part; they suffer a higher level of coronaries, stomach complaints, lung ailments, haemorrhages and the remainder through gross overwork, anxiety and fatigue. [An HON. MEMBER: "Over-feeding?"] No, never over-feeding. I correct my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). They eat sparingly, drink sparingly and indulge the other vices sparingly. [Interruption.] The Solicitor-General really should mind his language. He should not say, "What the hell do they live for?" He knows better than I do. [Interruption.] My hon, and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) says that he knows what the Solicitor-General lives for. The hon. and learned Gentleman is a sybarite in his outlook and in all these matters. I am not alone in these opinions about the top levels of executive rewards in industry and professions.
My right hon. Friend was talking about the "brain drain"—no doubt he was sustaining himself when I was talking at length about that and about emigration of scientists and technologists to the United States. That is all perfectly true. It has been well registered this evening. Even the Chancellor admitted that there was a grain of truth in it. We are coaxing him along the right paths, though very slowly. He takes only faltering steps. No doubt by next year his voice will be raised in our support, with his Left wing hostile to his views. [HON. MEMBERS: "Where are they?"] I do not know where they are. The Left wing never come and listen to educational speeches in the Chamber.
10.15 p.m.
I am not alone in my views. I was very impressed by a journalist whom I believe is foremost in his profession. I refer to Sir Colin Coote, of the Daily Telegraph, who spoke for so many of the members of the business and professional classes in Britain when he wrote an article entitled "Tax Problems Old and New" on 22nd March last, in expressing my views far more eloquently than I am capable of expressing views. He said:
One last point. Nowhere in the world is personal talent and efficiency so heavily punished as in this country. In the highest ranges of income the penalty is worse even than in Sweden, where the individual is allowed to keep at least one-fifth of his income. In Britain a high authority has recently estimated the maximum possible income after payment of tax at £7,000
a year or equal to £2,000 a year at 1938 values
without counting indirect taxation and local taxation, both of which have leapt up".
If we reduce the top level aggregation of direct taxation to 15s. in the £, as my hon. Friends and I suggest in Amendment No. 23, the cost to the Treasury would be £4 million a year; that is all. I hope that the Chief Secretary will argue about that, because he answered a Question from me a fortnight ago saying that he could not give the yield of the different bands of Surtax. In that case, he leaves it to me to compute on my own personal slide-rule what the effect would be on the Revenue. It would cost the Revenue £4 million a year to reduce the top level of Surtax to 15s. in the £.
I am glad to call in aid the character so greatly admired by the Chancellor of the Exchequer, my right hon. Friend the Member for Barnet (Mr. Maudling). On Sunday, 9th April, 48 hours before the Budget, my right hon. Friend wrote in the Sunday Express about the pure doctrine of contemporary Tory fiscal policy by calling for a reduction in Income Tax and Surtax. He said:
I asked the Chancellor of the Exchequer, a few weeks ago, what it would cost him to limit the maximum rate of taxation on earned income to 14s. 9d. in the £;"—
that is near enough to 15s. for me—
in other words, to say that anyone could keep at least a quarter of any income he earns, as they can in every other country. His answer was that it would cost £4 million.
That is £4 million out of the £11,000 million that the Chancellor budgets for this year.
I am sorry that the Home Secretary has arrived late in the Chamber. I was quoting in extenso his speech to the London Labour Party two days after the municipal election results in London, when he advocated taxation incentives and made my case for me. I am sorry that he was not here to listen to it. The right hon. Gentleman shakes his head in dissent. He should read the Sunday Telegraph, which reported his speech. I will send him an extract from it tomorrow so that he does not climb away of the important pronouncements which he made as a future Chancellor of the Exchequer.
I return to the Chief Secretary. What I am asking for would cost £4 million a year out of £11,000 million; £4 million a year compared with £3,800 million, that being the estimated yield of Income Tax this year and I hope that when the right hon. Gentleman replies he will not say that we cannot afford the Amendment moved by myself because £4 million would be too much. I remind the right hon. Gentleman of the Chancellor's gross miscalculations last year—whether it was a question of the Treasury's slide rule or an example of crass inefficiency I do not know—when he estimated that the yield of Income Tax would be £3,600 million. Out-turn was £3,246 million, a shortfall of 9·8 per cent., call it 10 per cent., call it a shortfall of 2s. in the £. That is how bad the Treasury is today at estimating the yield of direct taxes. I ask for only £4 million compared with an error in calculation of the mammoth sum of £354 million, that being the right hon. Gentleman's mistake. I will be charitable to him and call it the mistake of £354 million which he made last year in estimating the yield of Income Tax.
I am proud to be associated with my right hon. Friend the Member for Kingston-upon-Thames and my right hon. Friend the Member for Enfield, West. I advocated these causes last year. I am pleased to think that I am scouting ahead by 12 months of the Tory party in fiscal and financial policy.

Sir Henry d'Avigdor-Goldsmid: In a recent intervention the Chancellor reminded us that he had been attending these Finance Bill debates for some considerable period. I can only say that the speech which I want to deliver shortly is similar to one that I delivered on a similar occasion about 10 years ago, when a similar subject was being discussed.
My right hon. Friend the Member for Kingston - upon - Thames (Mr. Boyd -Carpenter) and my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) have made a most impassioned appeal on behalf of the rich and industrious. I do not think that there is anything I can say to better their words, or to put the case more accurately. I would like to draw the attention of the Committee to the case of the rich and unindustrious, who have few spokesmen.
I would like to draw attention to two features which appear in our lives as a result of the fact that the rich and unindustrious make such a very small show in it. Tomorrow, on Epsom Downs, there is to be an important racing event. I shall be ruled out of order if I venture to suggest the winner of the race, but I suggest to those who care to be present, or even not to be present, to have a wager, that they should back a horse which does not belong to a British taxpayer. I say that because if they look at the records since the war they see that out of the 21 runnings of the race, on only three occasions has it been won by someone who paid British taxes. In other words, someone who is not subject to British taxes is exactly six times as likely to win the race as someone who is.
This argument would not apply in any other country in the world which was interested in racing. I do not believe that in Ghana, where people are keen on racing, it is six times more likely that a horse which does not belong to a Ghanaian taxpayer will win. In America, France, Italy or Germany a taxpayer would be expected to have a horse capable of winning a great event of this kind. I give that as the first thought to the right hon. Gentleman, that there may be some benefit accruing to our rather barren existence in some respects in having people who can afford to have the best horses.
Another thought that I want to leave with him is on a different level—the question of literary magazines. Only two literary magazines, as such, are now published in this country. Until recently one was supported by the C.I.A., but I understand that that body has withdrawn its support, and there is only one other. These are two manifestations of the way in which, in other countries, the rich and unindustrious—the industrious rich having been dealt with by my hon. Friends—spend their money for the benefit of all of us.
Even if they were too high-minded to have an interest in horses most hon. Members might still not despise the reading of a literary magazine, but they would find it very difficult to get one in England today. That is not the case in other countries. These are examples of the ways in which the high rates of taxation—especially Surtax—have reduced the quality of our national life. It is not for me to make a plea of want or anything else in respect of people who own racehorses or produce literary magazines but I say emphatically that taxation levels are such as to freeze these sorts of activity.
This speech is apposite, because the subject seems to come up at the same time each year. I have not made my speech for the last 10 years, so I am pleased to bring the question to the attention of the Committee today, because the circumstances to which I drew attention 10 years ago are true today. There are even fewer literary magazines today than there were then, and the prospects of an English taxpayer winning the race tomorrow are no greater now than they were 10 years ago.

Sir D. Glover: I hope that my hon. Friend will not mind if I do not follow him in his picturesque description of Des Lake coming round Tattenham Corner tomorrow afternoon reading a copy of Encounter. I agree that there is much to be said for what happens in the cultural life of a nation.
I shall not reiterate the excellent arguments put forward by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and Worcestershire, South (Sir G. Nabarro), who made a devastating case for an alteration


in the rate of Surtax. My hon. Friend the Member for Worcestershire, South showed that his Amendment would cost the Exchequer only £4 million. At an earlier stage today, we were discussing tax evasion on the registration of motor cars which was probably costing the Exchequer over £10 million. That puts the matter into its proper perspective.
Over the last 20 years we have all heard arguments across the Floor of the House about our not being top of the league in productivity, about our productivity not rising fast enough, and about our poor effort in comparison with Europe and the United States. We have tried nearly every method to get our economy right, yet staring us in the face all that time is the fact that the leadership that the nation requires has been more harshly hit than anywhere else in the world. This could be largely put right for a sum so small that it would not figure in the accounts—£4 million. That sum would provide the leadership of the country with a great deal of incentive, and would alter the whole national picture.
10.30 p.m.
But that is not the end of the story. In the last 20 years, our high taxes have caused 750,000 people to leave for Australia. No one would say that they were the most idle, least ambitious element. Some of these people, who are now in the higher income groups and are helping to make Australia great, could be here helping to keep this country great. Similar numbers have gone to Canada and South Africa. These people would eventually have been the high income earners and leaders of a dynamic society. The blanket atmosphere of Socialism here does not encourage initiative, and thus led to their going elsewhere where there was more opportunity. They were not paying Surtax when they left, but they had initiative—people do not move 10,000 miles otherwise. It is this drive and restlessness which is the quality of leadership.
I would not like none of them to have gone, because I believe in the future of Australia, Canada and these other countries, but far too many went because they thought that this country's pattern was wrong. My hon. and gallant Friend

the Member for Knutsford (Sir W. Bromley-Davenport) asked the Minister of Technology a pertinent question today about the "brain drain", and the Minister's answer came from an Alice in Wonderland world that he will spend £75,000 on advertising to persuade some of these people—or the Americans—to come back to this country, which they left principally because of high rates of tax and consequent low incentives.
Surely this must mean that the Minister will discuss with the Chancellor altering the system which is sapping the initiative of the scientists and technicians we require to keep us in the forefront of the world. Even this Socialist Government are spending this money to discover what seems obvious—why these people went. This is the economics of bedlam: they never seem to learn.
I thought just now that we were making progress. The departing Chancellor had disappeared and the new man in this sphere came in to listen, and I thought, "This is the chap who will take over this job and he is interested in providing incentives to leaders of industry." But I think he only wanted to ask the right hon. Gentleman when the House would rise, as he soon left. He would have learned much had he stayed. The right hon. Gentleman will find it difficult to answer the devastating case of my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro).
For the last 20 years—and I can say this without appearing to be making a party point because this has been the thinking of this country for that time—we have had one debate after another about why Britain is so far behind our competitors. When we realise that every one of our competitors ensures that its industrial, commercial and banking leaders do not pay more than three-quarters of their income in taxation—and often they pay far less than that—we see why we cannot catch up. In Britain, people in the top bracket pay up to 18s. 9d. in the £, and last year they paid 19s. 3d.
It stands out like a sore thumb that this must have something to do with our unsatisfactory performance. American sociologists who have investigated the problem in this country say that, with


our rates of taxation, people reaching the middle income bracket—I am referring to the £6,000 to £7,000 a year managerial level—lose their enthusiasm for promotion. Why should they become the head of I.C.I, and other large organisations and shoulder the added responsibility when, because of our taxation rates, they benefit so little financially?
Far too many people are content to remain in the semi-important middle income bracket and spend their free time on social activities rather than provide the drive which would make the turnover of their businesses and organisations grow and so enable Britain to survive in this increasingly competitive world. We will not get on the road to growth and recovery until we accept that our potential leaders, who are able to do a magnificent job, and those who are now at the top are given more encouragement to stay in this country and not be tempted away.
A nation can follow the pattern which we have been following for 20 or 25 years, but eventually something must be done. Our present top management were in middle management 15 or 20 years ago. They have roots in our society and responsibilities and, despite the high levels of taxation, have soldiered on. But the potential leaders are members of a totally new generation in a world which is getting smaller each day. People realise that not so much is now involved in moving to the United States. They can come home to see their parents and relatives quite regularly. It takes only seven hours to fly from America to Britain. In four years' time the journey will take three hours. The new generation looks at the world as, 50 years ago, people looked on this country as one trading community.
As the river finally finds its way to the sea, it is inevitable that, in an international trading community, people will seek the best return on their effort and ability. They are bound to go to the places where they and their families can enjoy the greatest benefit and incentive. Unless we accept this we will continue to lose our best brains and suffer from a lack of first-class leadership. The proposal which my hon. Friends and I support and which would cost a fleabite

compared with our total national income, would, if accepted, solve many of these problems.

Mr. Geoffrey Hirst: Unlike my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), who is a great contributor to our financial debates but who said that he had not spoken on this subject for about 10 years, I can claim to have spoken on this issue whenever an Amendment of this type has been discussed.
On 20th June last year I moved an almost identical Amendment. I proposed a slightly more modest figure and devoted my argument to a much narrower line of thought. I recognised that that covered both elements of so-called earned and so-called unearned income.
Here, I must say, as I have said time and time again, that I deplore the continued use of the unfortunate phrase "unearned income". I suppose it grew from the fact that as people who worked got earned income, the rest of the income had to be unearned. It is time we changed that view. I was grateful last year to the Financial Secretary—I see that on this occasion we have a change in the batting, which I hope is all to the good—for saying that he had no quarrel with my suggestion that such income should be called investment income.
Even though that description does not cover every aspect of that type of income, it obviously covers the major part of it. It would be a good idea to start there. This term is a peculiarity, and a sad one, of this country. It does not exist elsewhere. No such suggestion is made in the United States. Its use here is a mistake, but I shall deal with that point a little later in my remarks.
The Chancellor of the Exchequer did neither himself nor the reputation of the country any good by his speech on taxation earlier this evening. It does not do for anyone holding his high office to be heard speaking in that way in this Committee and in the House. What is said here is followed very keenly on the Continent—perhaps the more so because of our application to join the Common Market. It is surprising to find how many people abroad are following what we are doing and saying.
I recently paid a brief visit to Italy, and I was very surprised to find from conversations the interest in and the knowledge of what we are doing and saying. I noticed the extraordinary extent to which our newspapers are being sold in the most unlikely little villages. It is, perhaps, interesting for those hon. Members on both sides who believe our application to be a right step to know that there is this sincere interest among ordinary people and not just among the politicians abroad.
We should be aware that what we say and do here is observed with interest, and it is the fact that our taxation is completely out of accord with the general thinking and purpose of the E.E.C. We should take the first step now to change it. We could easily do so this year. I was told last year that it would be rather difficult—and I recognised it—to move towards that end, but it is monstrous that we should continue to have this disincentive in our midst.
What the Chancellor of the Exchequer says about the aggregate of the average of the amount paid in taxation is nonsense, and we all know it to be nonsense. Only extraordinarily public-spirited people are prepared to take on responsibilities additional to their normal work at the marginal rate we have today. I know that one industrialist, who would have been a tremendous asset because of his worldwide experience, was invited to join the board of a major company as a part-time director at a moderate director's fee of £1,200 a year. He thought, "It is £147 10s. to me—I cannot take on another thing."
That is what is behind this discussion tonight. It is true that there is not a vast number of these people, but these are the people who set the pace of industry. Why do the Government have to offer the large salaries to which many hon. and right hon. Members object? It is because of the rate of taxation. These people take £25,000 a year to oblige—they are obliging the Government by accepting that figure. They have to calculate what it is worth.
Why are salaries of civil servants, good as they are, having to be shoved up to higher figures? This is to compensate for the amounts the Government take in Surtax. Not even the measures taken by

my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) could compensate for that. Even he dealt with this matter unfairly because some adjustment should be made to investment income as well. He did not do that justice, but he did something to improve this position which has been further eroded by inflation.
Did we get the sort of answer which this all justified last year? Not a bit. We had a courteous answer. The Financial Secretary said:
The hon. Member moved this in very reasonable and fair terms.
Indeed I did, and I got a courteous answer, but it added up to absolutely nothing. All the right hon. Gentleman said, and that was quite gracious of him, was:
The hon. Member has made his point. I have given my immediate personal reactions to the main point which he has argued. What the hon. Member has said will, of course, be borne carefully in mind if we reconsider this tax in a future year."—[OFFICIAL REPORT, 20th June, 1966; Vol. 730, c. 136.]
That was very courteous. I usually get that from the Treasury Bench, but it is about time we got something which added up to something and meant something and would give the people of the country the idea that if they took further responsibility there would be a great incentive for them to do so. Many people feel that it is not worth while. People in the middle range incomes say, "If we do not get into the Common Market, I shall pack up and go abroad." People say that because they are getting fed up, but they are the people who count enormously. We cannot work this out in terms of millions toiling at the benches although they are doing a marvellous job. I respect them, but that cannot take place by inflation. It can take place only if we have sustained growth at the top with such risks as they take to get a reasonable reward.
I want to say a word on the matter of investment income. If we get that term established we shall have gained something, but that is all we shalf have gained—a reasonable term. This difficulty does not exist in other countries, certainly not in those which are our great competitors. We need investment in this country. Investment is the savings and partnership in industry which is needed. Where would the big businesses of today be if it were not for the small businesses of the


past? They were allowed the opportunity in the tax situation to plough money back into their firms to grow up into the organisations which are making exports today. Far too few firms are making exports which the country requires. There are large sums for a very small number. We want to increase that, but we cannot do so if we kill off the small firms or frighten them off with Surtax directions and all the rest. All Governments are somewhat to blame in this matter, but at least the Conservative Government took some steps on these lines. There would be a little more respect for this Government if they in turn took further steps in this direction.

Lieut.-Colonel Sir Walter Bromley-Davenport: We have had a great many excellent speeches in this debate. I pay tribute to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) for the eloquent and devastating speech with which he moved the Amendment, though it bounced off the head of the Chief Secretary to the Treasury like a tennis ball off a concrete wicket. I congratulate my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) on the excellent speeches he has made. As I looked through HANSARD yesterday, it seemed that our last debate in the Committee had been one long speech by my hon. Friend. Also I congratulate my hon. Friend the Member for Ormskirk (Sir D. Glover) on his contribution.
I come now to the gravamen of the argument, how to reduce this taxation, which is so iniquitous and so heavy. What does it lead to? My hon. Friend the Member for Ormskirk has referred to the "brain drain". High taxation has two other consequences, tax avoidance and the tax-free racket. We hear enough from hon. Members opposite about tax avoidance; they tell us how the wicked rich avoid taxation. But what about other income brackets—the casual labour, the money in the hand? How often does the tax inspector get those returns, and what gigantic sums they are, too. It is all part and parcel of the same thing. Tax the people too heavily, and they will all cheat in the end.
What about the tax-free racket? A little while ago, my hon. Friend the Member for Ormskirk spoke about the gigantic salaries paid to the leaders of the nation-

alised industries. I remember seeing in a recent television programme the features of the great men who were to lead the nationalised industries, at salaries of £25,000. Far too much, it was said. To emphasise the point we were shown next the unshuffled features of the Prime Minister—with a "Let me be your father" expression—and we were told that he got only £14,500 or thereabouts. What absolute nonsense! £14,500?—my No. 9 foot!
What about the £4,000 a year tax-free? That is not mentioned. How about the house in London and the house in the country, and the motor cars? What about all the free entertainment, in which the right hon. Gentleman is so ably helped by his right hon. Friend the Foreign Secretary? Not so long ago, in company with some of my hon. Friends opposite —I am proud to say that I have quite a lot on that side—I was computing what the Prime Minister's salary was worth. One of them—no one will drag his name out of me even at pistol-point—said that he thought it was worth £200,000 a year plus. He is not far wrong.
I do not want to be misunderstood. I do not begrudge the Prime Minister any salary he wants. I remember Lord Hudson saying, when Lord Attlee put his salary up, that he did not bedrudge the Prime Minister a penny of any salary he decided he should have, but, he said, "Do not disguise it. Call it what it is, make it gross, so that people can see how much you are getting ".
What would it cost to reduce Surtax in the way we ask, so that a man could keep, say, 25 per cent. of what he earned? It would cost £4 million out of a total of £1,500 million. Why will not they allow this? I watched the right hon. Gentleman. I am never personal in the House of Commons. I do not believe in it. But the answer has been written plain on his face and that of other hon. Members on his side of the House. Hate is what will stop them reducing this tax, and nothing else.

Mr. Ian Lloyd: The Committee will not expect me to follow my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) too closely in his distinction between gross and net incomes. It is a rather gross subject.
But a great deal of the envy which he rightly discussed could be removed from


the discussion of the subject if the Government set a good example by publishing all salaries over, say, £3,000 a year as the net salaries of a married man with two children. That would put a completely different light on the vast majority of salaries, particularly at that level, throughout the public sector.
It is astonishing that year after year the Chancellor, with his strange combination of dogged charm and determination, should continue to defend his fiscal enormities. He reminds me of the newly promoted young officer of the watch on an aircraft carrier who, on a very dark night, saw a light in the distance and told the signalman to send the signal, "Get out of my way. I am an aircraft carrier." Nothing moved. The two lights, his own and the light that he saw, were on a convergent course and after a few seconds he said, "Make another signal. Remind him that I am a naval vessel, an aircraft carrier, and tell him to get out of my way." The signal went off and very shortly a second light was seen next to the original light flashing the message: "I cannot. I am a lighthouse."
It sometimes seems to me that these fiscal matters appear to be absolutely immovable. But the Chancellor throws no light on these murky scenes of fiscal confiscation. High taxation seems to have an irresistible siren light effect on Socialists, and unfortunately they take the economy on the rocks with them.
The Chancellor referred to the cost of tax reductions. Is not he taking a strangely static view on this question, and assuming that there will be no new national impetus as a consequence of these changes, no general improvement in the style and quality of economic performance? That is what we on this side of the Committee hope to achieve from these changes, and are confident that we shall obtain. If we obtain them over a period of time—and time is of the essence of this problem—there will be a dramatic improvement in the style of our economic management and performance, with consequent effects on the gross national product.
It sometimes seems to me that we neglect the wisdom of a great economist to whom the Prime Minister would no doubt refer as a Victorian economist in the disparaging terms he uses about such

people. I am speaking of Alfred Marshall, who once said that it was important in managing national economic affairs to harness the strongest as well as the highest of human motives. Time and time again the Government are inclined to forget that. Having done so, they discount completely the effect of the higher proportion of the strongest motive, which the type of changes we advocate brings into play.
The Chancellor attempted to answer the arguments on this side by speaking somewhat disparagingly of the extreme contrast between incomes of £15,000 and what he implied were all the rest—possibly £1,000 or less. That is a most misleading argument, because significantly vast numbers of incomes lie between those two levels.
I would have though that the brain drain was not significant numerically in the over £5,000-a-year class, though it could be argued that it was most significant qualitatively. The Chancellor asked the people concerned to return, but why should they suffer the serious financial penalties of doing so? There is no escaping this.
11.0 p.m.
By and large, the people in this category of incomes emigrate before they are earning £5,000 a year, and they do so because they hope to have an income of between, say, £5,000 and £10,000 a year net of tax at least 15 years before they will do so in this country. From that income, in the fiscal environment of the United States and several similar countries—we should not exclude Canada and Australia—they are permitted to look forward reasonably to an honestly-earned accumulation of capital which they do not have the foggiest chance of accumulating in Britain under its present fiscal environment. Why should they abandon that opportunity to return to the fiscal environment of Britain, in which the chance of accumulating a reasonable capital sum of that kind is virtually nil?
The Chancellor said that the United States was a richer economy and could, therefore, afford that broad range of salaries and incomes. It seems to me, however, that a high relative inducement can be offered in an economy of that kind for high additional effort, whereas in Britain today a high relative inducement


cannot be offered for high additional effort, and particularly if that effort is not necessarily wholly of an economic character but involves all that a man has to do when he has to uproot himself from one part of the country, from one job, one company or one type of work, and move over to a completely different economic environment.
The Chancellor wants to stimulate mobility of employment. He wants to stimulate it, surely, at the highest levels of responsibility as well as at the lowest, but in our fiscal environment this is something which it is almost impossible to achieve.
The Chancellor also attempted to defend his case by saying that the taxes which were reduced for the rich, as he described them, had the effect of having an immediate and perceptible impact further down the scale. He pointed out that this balance in itself was inadequate because the whole range of social incomes up and down the scale should be taken into consideration. In drawing that conclusion, however, he overlooked the fact that education, the National Health Service and the whole range of Government services were used in his calculations. Indeed, in most of the calculations of the effects of social income the whole range of State incomes is applied on an average basis to all concerned.
That neglects the point that many people, not only the rich, not only the highly paid, do not at all stages of their careers and of their earning derive benefit for long periods from that type of income. Many of them choose not to derive benefits from that type of income and many of them may be fortunate enough throughout their lives to derive none at all.
My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who made a distinguished contribution to the debate, stressed the importance—and it is a most important subject—of the structure of taxation and pointed out that structure was possibly, in many contexts, much more significant than the total value of taxes raised.
It is fair to say that Keynes was not unaware of that, although the gravamen of his work referred largely to the volume of taxation. Many of the other great

writers on this subject—one can go back a very long way, starting with Adam Smith and going on to Ricardo, Marshall, De Viti de Marco Pigou, Sir Dennis Robertson and a galaxy of economic stars—were wholly aware of it. I think that the Government, however, are not aware of it. It is astonishing that so much of this seems to fall by the wayside in the professional economic advice which the Government receive.
Those men, distinguished as they were, were wholly aware that one of the distinguishing characteristics of taxation is its tendency to crumble as the grip tightens. This the Government neglect time and time again. One range of taxation after another they carry to the point where the tax visibly begins to crumble. Vast problems are created by the sheer complexity of the methods of taxation which have to be employed as this sense of crumbling is appreciated by the Government and they strive, by one means or another, to increase the effect of a tax whose efficiency is declining.
I hope that the Chancellor will learn to distinguish between ships and lighthouses and will reinstate, in his attempts to judge the consequences of these very complex matters, the element of time, because time is all-important. We ire not considering a static problem. The size of the cake can never be constant from one day to another. At the moment, he should consider the consequences of tax changes over a period of six months and the net contribution that a tax change can make to the national economy.
Unfortunately, the right hon. Gentleman did not answer the suggestion I made to him about creating some form of tax standstill or platform. Perhaps he did not regard it as desirable. But of all forms of economic freeze desirable in Britain today, a tax freeze is easily and by far the most desirable.

Mr. John Smith: The Government have so far rebutted our contention that direct taxation is too high by reference to the effective rates of tax. The Chancellor stressed that effective rates were much more important than marginal rates. He said that higher paid executives were already in their jobs and paid at a fixed rate "and were working as hard or as little as would do in any case, whatever the marginal rates.
That is a curiously static and even ossified view of industry. The world of management is constantly in motion. New jobs need filling all the time. When a good man considers a better job it is certainly the marginal rate that he thinks about. It is the men in the good jobs who nevertheless get offered better jobs who are, of course, the most valuable to the country.
I assure the Committee that I know of many people, not particularly highly paid—indeed, well within the lower limit of Surtax proposed by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter)—who decline promotion because it is not worth it. This particularly applies to those people with children at the university. It is not a simple question of offering insufficient marginal incentives because of the tax. For such men, the little they gain is more than offset by what they lose in grants.
Secondly, there is the question of the "brain drain". The Chancellor actually said that the drain to America was the only drain which mattered. But brains do not only drain to America. They drain into armchairs and into indifference and into cynicism, and they are just as much lost to the country in that way. We pay a very high price for pandering to the spirit of sour grapes and envy and I warmly support the Amendment.

Mr. John Hall: I had not really intended to speak because, unfortunately, I came in after the debate had started, much to my regret. I am moved to speak by the remarks made by my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) when he referred to the speech made by the Chancellor. Apparently, the right hon. Gentleman said the marginal rate has no effect because, generally speaking, the people who are having to pay the highest marginal rate are fixed in their appointments and jobs are not likely therefore to be influenced by the tax position. I support what my hon. Friend said about that. The Chancellor's view is really not true. In the first place, one of the major reasons for the "brain drain" is that, among the people going abroad today are younger people who believe they can more quickly reach the highest levels of income at which in this country they would have to pay the highest and most savage marginal rate.
These are the young men with confidence in their ability. They are the sort of young men who are the future leaders of the community, especially an industrial and professional community. They are going because they have confidence in their ability to earn. Secondly, as my hon. Friend rightly said, people who are near or at the top marginal rate, which, as the Chancellor said in answer to a question, is 91¼ per cent., get to the position where they refuse to accept further responsibility unless they are considering power and status and not just earnings. I would not under-rate the attractions of power and status. These are the sort of things which keep people going when they are not getting any additional income. But there are many people in medium-sized companies who are not likely to get any additional power and status by taking additional responsibility and they get to the position where they refuse to go on working because it is not worth it.
When comparing the marginal rate in this country with other countries, there is no doubt that we are top of the league. It is true that, taking taxation as a whole, direct and indirect, we are not as badly off as we sometimes like to believe and, in comparison with our major industrial competitors, our position is not all that unfavourable. But when one gets to the top rate of income taxation is savage in the extreme.
If the Chief Secretary will refresh his mind with the figures given to me in answer to a Question last month, he will see that whereas in this country it is 91¼ per cent., the rate of our nearest rival is something like 70 per cent., and in France the rate is 50 per cent. I happen to be on the board of an Anglo-French company, and when I said to my French colleagues that their marginal rate was under 50 per cent. they did not really believe me.

Mr. Michael English: Will the hon. Gentleman give us statistics showing the proportion of French taxation derived from direct taxation as compared with the position here.

Mr. Hall: I was not dealing with that point but with the marginal rate on personal income, and the marginal rate in this country, as stated clearly in


answer to a Question I asked, is much higher than in other countries and it makes its impact earlier. The impact of the top marginal rate in this country takes place at £18,500 earned income for a married man with two children. If it is unearned income, the impact is at £15,000.
If we go into the Common Market we shall have to do something about bringing our tax burden into line with that of other members. If we do not, people earning high incomes will find ways and means of transferring their main activities to other parts of the Common Market where the tax burden is less. As I understand the Common Market arrangements, it will be top executives as well as bench workers who will be able to move. In France the marginal rate is under 50 per cent. and the effect is felt much later.
I beg the Chief Secretary not to look at this from a political point of view, which is the point of view from which the question is too often considered, but from an economic point of view and the effect on industrial effort in this country. Too often when one considers the question of Surtax one gets the old cry that it is the rich against the poor and one hears the Chancellor say so often, "Why should you give more to the rich?" This is the question which every Chancellor of the Exchequer of every industrial country has to answer. I would suggest to the Chief Secretary, in considering this question, that he has to take into account the leadership and impetus given to the industrial and professional effort of people who have ability. Secondly, he has to consider whether we are to keep in this country the people who are best qualified to contribute to our industrial efficiency.
If we become part of a much larger trading area and if we are likely to lose people to other parts of that community where the tax position is much easier, it could be disastrous. I hope that the Chief Secretary will bear this in mind, especially if he is hoping, as I think he is, that we are successful in our application to join the Common Market.

11.15 p.m.

Mr. English: The speech of the hon. Member for Wycombe (Mr. John Hall) causes me to comment that in this coun-

try we have a sort of purblindness. We automatically assume that our rates of taxation are the highest in the world, and they are not. It is assumed that more of our taxation comes from direct taxation than is the case in any other country, which is not so. On Second Reading, my right hon. Friend the Chief Secretary made this point quite satisfactorily. There are other countries the United States of America, for example, where, if state as well as federal taxation is taken into account, there are higher rates of taxation. I wish that this argument would cease.

Mrs. Thatcher: I congratulate my right hon. Friend the Member for King-ston-upon-Thames (Mr. Boyd-Carpenter) upon the excellent and thorough way in which he moved his Amendment. Each speaker from this side of the Committee has had his own method for reducing the Surtax burden, but I hope that when the Division comes my hon. Friends will think it right to divide on Amendment No. 24 so that we can then proceed to other business.
From what he said, it was patently obvious that the hon. Member for Nottingham, West (Mr. English) was not present during our debate on the last Amendment when both the Chancellor and I went into this matter very thoroughly, and perhaps the hon. Gentleman will read in HANSARD what we said.
The debate has naturally hinged on the marginal rates of taxation which in this country are undoubtedly the highest in the world. The Chief Secretary has been very industrious in giving us replies to a number of Questions which we have put to him over the last few weeks and months. It is obvious from his reply on 9th May, 1967—column 189 of the OFFICIAL REPORT—that not only are the marginal rates here the highest in the world, but they start to operate at a much earlier level than is the case in a number of other countries.
In particular, we have been compared with the United States of America. This comparison is very telling, because the United States tends to be the country to which we lose our most able industrial and academic brains. The maximum rate of tax on personal incomes in the United Kingdom is 91·25 per cent., disregarding the surcharge, and for a married couple with two small children it starts at an


income of £18,900. The same marginal rate in the United States, taking into account the highest state income tax as well, is 76 per cent., and it does not start until an income of £77,000. The discrepancies on both counts are absolutely enormous, and in no other country is the actual highest marginal rate anything like as high as it is here. With unearned income, the rates get very high very early. The marginal rate on unearned income this year is 55 per cent. on an income just over £2,000. This puts a very high tax on savings, a subject with which we dealt on the last Amendment.

Mr. Hirst: I know that it is customary and almost habitual to talk of "unearned income", but would not my hon. Friend agree that "investment income" would be a better term?

Mrs. Thatcher: I think that the best term of all is "income from savings". Perhaps we can settle for that.
A number of hon. Members have mentioned various salary scales and someone mentioned the salary paid to the chairmen of the nationalised industry boards —£25,000. I note that with that salary, assuming that he is a married man with no children, he would keep only £7,800 and all the rest would go in a mixture of Income Tax and Surtax. One of the problems of having these high Income Tax and Surtax rates combined is, as was pointed out in an article by Professor Wheatcroft and also by Sir Edward Beddington-Behrens in an article in The Times that the British tax system imposes an effective ceiling of £7,000 per annum on the after-tax remuneration of any top executive.
The net take-home pay is £7,000 per annum, at about £16,000 income. In order to boost one's take-home pay above that, say by £1,000, one would have to be paid another £11,000, which is such a ridiculous figure that there becomes an effective top limit of £7,000 per annum. This is equivalent to £3,500 in 1946 terms, and to £2,500 in pre-war terms. I mention those figures because it makes the income seem comparatively low.
My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was one of the right hon. Members who mentioned the effect of taxation on marriage, where both husband and wife are high income earners.

There was an excellent illustration in the Financial Times on 1st April headed "Marriage is expensive for the big income earners". That took a particular case of the husband and wife, who both came into the Surtax bracket for the first time in 1953. Between that year and this year they calculate that it has cost them £12,000 to be married. In the 13 years before they both retire, on the assumption that neither the salary goes up, nor the tax rates come down—and as there is a Labour Government in power that would be a reasonable assumption, though there will not be a Labour Government for the next 13 years—it will cost them an additional £29,500.
This is because for Surtax purposes the additional earned income of the wife is not allowed. This is a ridiculous situation. I admit that it does not affect many people, but it is important that sooner or later this point should be dealt with as well. A number of people have questioned taxation's disincentive effect. Again, I thought that there was another very good case put in the Financial Times on 20th April. It was in the form of a letter to the paper, written by the managing director of McKinsey and Co., very well-known management consultants, who pointed out that hitherto his company had been recruiting for the work that it has to do, which is extremely important, British graduates who had taken second degree at one of the famous business schools in America. The company has found them very valuable and excellent for the work of management consultancy. Mr. Parker said in his letter:
We are finding increasing reluctance among many of these young Britons to return to this country, for one grim reason: the impact of U.K. taxes on their future earning power. In the U.S. they can command high starting salaries, rapidly increasing gross incomes, and above all the chance to earn enough after-tax net income to be able to build capital.
That really puts it in a nutshell. We now have a very high rate of Surtax, particularly for next year, which is dealt with in the next Amendment. Incidentally, I would point out that the rate of Surtax this year is 55 per cent., much higher than ever before in the history of the country. That letter puts the situation in a nutshell. It is not possible to accumulate capital in this country in the way in which it can be accumulated in the United States. If people could accumulate capital more easily, a number of people would


perhaps retire earlier, leaving the top jobs available for the younger men. Younger men want the top jobs quickly. They are not prepared to wait a long time.

Mr. John Lee: Is the hon. Lady suggesting that it is socially desirable to render people redundant at an earlier age than is at present the case? Is it not part of our social policy to try to encourage people to stay on at work after retiring age?

Mrs. Thatcher: I do not think that the hon. Gentleman is quite on the same wavelength. He knows that quite often one of the problems is to find top jobs for the younger men at salaries which they ought to be able to command, and which they can command in the United States. They can get a much bigger take-home pay there. One of the problems facing younger men is that of having to wait for the shoes of those who retire.
Whichever way one looks at it, I think that it would be as well if we could all accumulate capital out of saved income, and another reason why people go to other countries is that they can do this. [Interruption.] As far as I am concerned they can earn £25,000 a year. What I want to ensure is that the most able people do not go to the United States.

Mr. Heffer: I have listened very closely to the debate, and it is clear that the Opposition, and the hon. Lady in particular, are concerned only with a very small group of people. The hon. Lady is not concerned with the mass of ordinary working people who work hard for this country and get very little for it.

Mrs. Thatcher: The hon. Gentleman is quite right. We are concerned with a comparatively small group of people, I do not deny that, but I say that the future of people in industry depends tremendously on the small group of people who can create more wealth, and they are far more valuable to the ordinary working person than those of us who work here, including the hon. Gentleman, who cannot.
The Amendment is very modest. It suggests a reduction in Surtax of about 10 per cent. I wish that I felt more optimistic about the right hon. Gentleman saying that he would accept it, but if he

does not give us a satisfactory reply I hope that we can proceed fairly quickly to the Division Lobby.

Mr. Diamond: This has been an interesting, unusual, and to me an astonishing, debate. It has taken place against a background of great restriction on the incomes of the mass of the people of this country, and it is against this background that it is proposed to help either the richer section of the community, or the richest section of the community, or the very richest section of the community. These are the three proposals which are before us, and they have to be considered against the background which I have considered.
I shall deal with the arguments because it is my privilege so to do, and I shall answer hon. Gentlemen fully, but I want to put the issue in its context so that if from time to time I am unable to express myself with the normal restraint which I do the Committee will understand that it is because I am boiling inside. This is an inevitable result when one has the responsibility of answering a case. One listens with great care to everything that is said and tries to judge the validity of the argument and the relevance of it to the progress of people in this country.
11.30 p.m.
First let me tell the Committee what the cost of the proposal would be, and this has to be measured against a total revenue for Surtax purposes of about £250 million. That is the total amount of revenue which Surtax produces at present, including the 10 per cent. additional levy. Against that proposal we have three Amendments. The first is that of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), which proposes to reduce the revenue from Surtax by £95 million. He thinks that the present time is the appropriate time to reduce Surtax by £95 million and to exclude from Surtax about two-thirds of those liable to pay it. That is his proposal, and it meets with considerable approval among hon. and right hon. Members opposite.
The second proposal comes from the hon. Member for Worcestershire, South (Sir G. Nabarro), which is to reduce the revenue from Surtax by approximately £32 million The third proposal—the official proposal and a much more modest


one—is to reduce it by £20 million. In each case I give the figures for a full year. The right hon. Gentleman said there was no suggestion that those who were earning £10,000, £15,000 and £20,000 a year should get this vast reduction in their liabilities and this vast increase in their take-home pay purely on the ground of compassion. I thought that he was leaving a weak point well on one side.
His case was based on the economic improvement of the country as a result of the greater initiative of those leaders of the business, commercial and industrial community who were earning these salaries. Let me deal with the matter on those grounds, and say immediately that I entirely reject that proposal and the slanderous statements—as I understand them—that the right hon. Gentleman was making against the leaders of industry.

Mr. Boyd-Carpenter: As the right hon. Gentleman has sought to summarise my argument, I must point out that he referred only to part of it. I spent a good deal of time and a great deal of emphasis on the prevention of a loss of talent by way of "brain drain" which would result from reducing our levels of taxation on higher incomes to somewhere near the levels ruling in other countries.

Mr. Diamond: I agree. I was going on to deal with the second part of the right hon. Gentleman's argument later. That was taken up by a number of hon. Members—particularly the hon. Member for Ormskirk (Sir D. Glover). I am not suggesting for a moment that those who carry great responsibility do not deserve and earn high remuneration for what they do. Nobody on this side of the Committee rejects the proposition that there is a rate for the job, and that if the job is a very responsible one the rate should be a very high one.
What I am dealing with is the consequential argument and the theory on which the claim of the Opposition is made. I say—I believe this, and there is no evidence against it and considerable evidence for it—that those who earn these substantial salaries and incomes from carrying out these higher responsibilities are attracted in the main by their interest in the job, the satisfaction they get from

doing it, the power which the hon. Member for Worcestershire, South referred to, and, to an extent, by the level of remuneration. They are attracted both by the dignity which this knowledge confers—because there are many people who would be willing to accept public appointments at a lower salary if it were not for the fact that it would slightly declassify them—and for the remuneration itself. But I deny completely that their major concern is with the level of remuneration and what they can spend. That is a separate issue entirely—[Interruption.] The hon. Member for Worcestershire, South and I have different views—that is perhaps why we sit on different sides—but we have served in similar ways and I know the field he mentioned. Like everyone else who produces mis argument, he said, "Of course, it does not apply to me. I work because I am interested."—

Sir G. Nabarro: That is utterly false. I said nothing of the kind. I said that I was proud to represent the case of the highest paid men in industry, because they are far more important than unskilled workers in the workshop.

Mr. Diamond: The trouble is that the hon. Gentleman always talks and never listens. I did not say that. He said that he based his argument on the fact that high taxes deterred people from doing responsible jobs, and added, "Of course, this does not apply to me." One hears this again and again. Anyone who has spent five minutes considering the real motivations of people doing this kind of work knows that the remuneration is part and not the whole of it and probably the smaller part. We have to consider something different—what happens when such a man is called upon to contribute from his remuneration to the common activities of the State.
Of course he does not like it, mostly. He does not like contributing to a National Health Service which he does not use, or to education which he does not use because he pays for it separately. He much prefers to spend his own money in his own way. This Government believe in intervention by the State and taxation is better described as the level of intervention—[HON. MEMBERS: "Oh"] Oh, yes. Taxation does not disappear into thin air. It is collected and is spent on a whole variety of social,


economic and military services. To the extent mat the State intervenes and takes on these activities and organises group community activity, it calls on the individual to contribute, and to the extern that it does not, the individual must pay for it out of his own pocket or go without.
We believe that most of the things which the individual wants are best and most economically satisfied by the community—his defence, his education, his health, his roads, his security, his justice. This is why we believe in a level of intervention not matched in all other countries—

Mr. Michael Heseltine: The right hon. Gentleman is arguing that the measure of intervention by his Government is reflected in the level of taxation, and he believes in intervention. Why, then, did the leader of his party give a specific assurance that there would be no increase in taxation under his Government—in other words, no increased intervention?

Mr. Diamond: I wish that hon. Gentlemen opposite would be a little more patient. I was coming to a comparison of the levels of Surtax under both Governments. Perhaps hon. Gentlemen opposite will be good enough to listen to me, although that may be too much to expect at this hour.
The allegation is that, under the present Government, the rates of Surtax are so high that they act as a calamitous deterrent to those who would otherwise serve the community and their respective organisations well. I will give some examples of what the burden of Surtax is today and, to put the argument at its highest against me, I will give the level of Surtax as it will be next year, with the additional 10 per cent. added. I will give a comparison between that abnormally high figure for one year only and what individuals were called on to pay under the Tory Government of five years ago.

Sir G. Nabarro: Five years ago?

Mr. Diamond: For 1960–61, before the reliefs.

Mr. Patrick Jenkin: What about 1961–62?

Mr. Diamond: In 1960–61 a married man with two children, an average case, earning £5,000 a year, which is £100 a week, was called on to pay £442. Today he pays nothing.

Mr. Hirst: It is not a proper comparison.

Mr. Diamond: A man earning £10,000 a year, or £200 a week, was called on in 1960–61 to pay £2,070. Today he pays £902.

Mr. John Hall: rose—

Mr. Diamond: The hon. Gentleman can, if he thinks fit, intervene in the debate later.
A man earning £20,000 a year, or £400 a week—

Sir G. Nabarro: What a very bad speech.

Mr. Diamond: —was called on in 1960–61 to pay £6,806 in Surtax. Today—that is, with the additional 10 per cent.—he pays £5,513, a reduction of £1,293. [HON. MEMBERS: "Why"?] If hon. Gentlemen opposite will allow me to say five sentences without interrupting and caterwauling I will tell them why. I am giving these figures because we know that this was before the vast Tory reduction in Surtax, but if one is to judge and compare the levels of Surtax, one must have a starting point. Hon. Gentlemen opposite may select a lower figure as a starting point, but I assure them—and I want to be frank about this—that a higher figure of Surtax is very much in our minds on this side of the Committee.

Mr. Hirst: What does that mean?

Mr. Diamond: It means that we are conscious of the fact that it was only five years ago that Surtax earners were paying a much larger figure in Surtax. At that time we heard nothing about this deterrent effect; that is, until the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) argued that everybody's efficiency would be increased. Now we have the same argument; and when it is further reduced we will have it again. I reject completely that this is related to deterrent effects.
11.45 p.m.
There has never been any evidence for this in this country. The only thing which


the hon. Lady has been able to produce is a paragraph from the Canadian Royal Commission Report. We have had four examinations in this country on the deterrent effect of taxation at the Income Tax level, and the Surtax level on overtime pay, and so on. All of them have come out with the same answer, which is that there is no evidence that rates of taxation at the levels we bear exert any deterrent effect on overtime workers or salaried workers generally.
I have been asked about the "brain drain" and I shall be very glad to deal with it. What I suggest is relevant in this consideration is the level of salary and not the rate of Income Tax. It is certainly true that the American economy can offer levels of remuneration with which we cannot compete. One or two hon. Members—the hon. Member for Onnskirk was one—said that the high taxation level was the main cause for the drain, and they are correct in saying that the levels of taxation in this country are high when one gets to the £15,000 a year income.
I am now dealing with the effective rate, not the marginal rate, for reasons which we need not now repeat. The effective rates of Income Tax and Surtax on incomes over £15,000 a year are among the highest. I do not allege that—I affirm it. We believe that when one is earning income at that level one is in a position to contribute more to the common welfare than is the person earning a tenth of that figure. That is our point of view.
Let me turn to the brain drain. The argument is that we lose talent to America and to Australia because of the tax levels in this country. That is a very odd argument, because in America taxation levels are lower, and in Australia they are higher. The hon. Member for Ormskirk said that we lost 750,000 people recently to Australia, and I can give the figures with the greatest pleasure. I have them here at levels starting at £900, and going on to £2,000, £4,000, £7,000 and £15,000. They all show the same result—that the net disposable income for a married man with two children after paying tax is higher at those levels in this country than in Australia. Yet we are told that the cause of the "brain drain" is the level of tax rates, and that that is why 750,000 have gone to Australia.
In short, I say that it is absolute nonsense to try to relate the two. There is no evidence. These rates of taxation are not high in terms of the total impact of taxation. I gave the figures during the course of the Budget debate. They do not act as a deterrent to those who have these responsibilities, having regard to the interest, the power and the attraction of their jobs. I say that this is purely—I would not call it a campaign, but rather a smokescreen behind which to hide what many hon. and right hon. Members want, which is simply for the rich to get richer—[Interruption.] There is no appeal in that proposal to this side of the Committee.

Mr. Boyd-Carpenter: There was not much indication on the surface of the internal boiling inside the Chief Secretary of which he was good enough to warn us at the commencement of his observations—

Sir G. Nabarro: Hot air!

Mr. Boyd-Carpenter: My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) observes that it apparently came out in the form of steam.
It was one of the most extraordinary speeches that even this adaptable and flexible Minister has made. He began very heavily about these proposals being made against the background of everyone's income being frozen. It is not my hon. Friends who have frozen it. It is a little curious for the right hon. Gentleman to try to call in aid of his resistance to these proposals other actions for which he and his Government are alone responsible and which we on this side of the Committee have fought at every stage.
I take him up on his reply to me when he said that it was a slander on those in high and responsible positions in industry to suggest that what they were able to get by way of take-home pay was a major factor in their taking those responsibilities. He said that honour, power, status and dignity were the real motives. If so, can he tell us why the Government have found it necessary to pay £25,000 to the Chairman of the new Steel Board and something in excess of £20,000 a year to other members of the Board. Was there not something in the way of power, status, honour and dignity there?
Then there was the quite extraordinary argument that Surtax in respect of some


people at any rate had been higher in 1961. It is clear that the right hon. Gentleman selected that date because it was immediately before the reductions for which my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) was responsible. If the right hon. Gentleman is seeking to call in aid the fact that in some respects the rates are now lower, I think that in decency he should call in aid the fact that that reduction was fought at every stage by his hon. Friends. The present Prime Minister denounced it again and again as a hand-out to rich Surtax payers. Hon. Members opposite are entitled to their views, but it is a little nauseating when the Chief Secretary comes forward now to claim the result of those changes as apparently reflecting some credit on the present Government.
I was very disappointed by the fact that the right hon. Gentleman did not even try to deal with some of the serious issues which my hon. Friends and I put to him. He never sought to justify—we put this specifically to him—maintaining tax rates on the higher levels of earnings which are higher in this country than in the countries of our competitors. I quoted Government figures, not my figures, showing that a married man with two children in this country who gets £15,000 a year retains a third of what a similar man retains in countries which are our bitter competitors. I suggested that this called for some justification but we did not have a word of it.
I asked the right hon. Gentleman how he reconciled maintaining these rates with an apparently genuine desire by the Government to go into Europe. The right hon. Gentleman knows that those rates are inconsistent with membership of the Community. He will recall that I asked specifically what the Government thinking was on this point, and whether they were making preparations to adjust the tax rates to bring them into line with those of comparable people on the Continent to justify our entering the Community. I am in the recollection of the Committee in saying that he did not address a single observation on that question.
The right hon. Gentleman treated what is a serious issue in a way which at times was, I thought, a little frivolous and at

times, frankly, inadequate to what is, whatever hon. Members opposite think about it, an important and difficult issue. I do not want to detain the Committee at this late hour. As my hon. Friend the Member for Finchley (Mrs. Thatcher) indicated, it would probably be easiest if we came to a decision upon the Amendment in the names of my hon. Friends, Amendment No. 24. I would be perfectly prepared to accept negativing of my Amendment, No. 22. I hope that the Committee will show its complete dissatisfaction with the right hon. Gentleman's answer and the inadequacy of the Government's attitude on this whole issue by going into the Lobby in support of Amendment No. 24.

Sir G. Nabarro: We are discussing a group of three Amendments taken together. The Chief Secretary told us that No. 22, in the name of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), would cost £95 million in a full year. My Amendment, No. 23, he said, would cost £32 million in a full year. Amendment No. 24, in the name of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), he said, would cost £20 million in a full year. I am in the middle of the road here. My right hon. Friend the Member for Kingston-upon-Thames is a dear customer in this context. My right hon. Friend the Member for Enfield, West is cheap in this context, and that in no way derogates from his argument.
If I allow my Amendment to be negatived and I vote in support of Amendment No. 24, I do not want it to be thought that I am necessarily committed for the future to the cheapest recourse.

Mr. Diamond: The hon. Gentleman will not be faced with that problem. I understand that his Amendment is not selected for a Division.

Sir G. Nabarro: Yes, but there are other years in which to debate this issue, next year or the year after, from either side of the Committee.
I greatly resent the calculated and careful arguments advanced from this side on all three Amendments being described as a smokescreen. There is no subterfuge about what I have said, with the support of the majority of my right hon. and


hon. Friends. I paraphrase it shortly in this way. Nobody in this country should pay more than 15s. in the £ as an aggregation of Income Tax and Surtax, compared with the top rate in the United States of 14s. in the £. That is the first proposition. No smokescreen about that. It may be didactic in delivery, so the right hon. Gentleman thinks, but at least it is honest, blunt and candid.
Second, I am not interested in the fiscal codes of Albania, Liberia, Guatemala, Haiti or some other tin-pot Latin American republic. I am interested in the direct comparison with our principal industrial competitor, the United States. We want our tax codes for successful executives in the higher income brackets to be in consonance with those in the United States of America. The fact that they are not is not the only cause of the brain drain, though the right hon. Gentleman sought to attribute that suggestion

to me. I did not say that. I said that it was a principal cause of the brain drain, and I named many other causes as well.

With those few further words of clarification, to rectify the errors made by the right hon. Gentleman, I shall happily resume my seat, at one minute before midnight, ready to vote enthusiastically for my right hon. Friend's Amendment No. 24.

Amendment negatived.

Amendment No. 24 proposed: In page 16, line 40, leave out from 'at' to end of Clause and add:
'nine-tenths of the higher rates in respect of the excess as were charged for the year 1964–65'.—[Mr. Iain Macleod.]

Question put, That the words proposed to be left out stand part of the Clause: —

The Committee divided: Ayes 179, Noes 129.

Division No. 347.]
AYES
[11.59 p.m.


Abse, Leo
English, Michael
Lever, L. M. (Ardwick)


Allaun, Frank (Safford, E.)
Ensor, David
Lewis, Arthur (W. Ham, N.)


Alldritt, Walter
Evans, Ioan L. (Birm'h'm, Yardley)
Lewis, Ron (Carlisle)


Anderson, Donald
Faulds, Andrew
Loughlin, Charles


Archer, Peter
Fernyhough, E.
Luard, Evan


Armstrong, Ernest
Finch, Harold
Lyon, Alexander W. (York)


Atkinson, Norman (Tottenham)
Fletcher, Raymond (Ilkeston)
Lyons, Edward (Bradford, E.)


Bagier, Gordon A. T.
Fletcher, Ted (Darlington)
Mabon, Dr. J. Dickson


Barnes, Michael
Foley, Maurice
McBride, Neil


Barnett, Joel
Foot, Sir Dingle (Ipswich)
MacDermot, Niall


Baxter, William
Foot, Michael (Ebbw Vale)
Macdonald, A. H.


Bence, Cyril
Ford, Ben
McGuire, Michael


Bennett, James (G'gow, Bridgeton)
Forrester, John
Mackenzie, Gregor (Rutherglen)


Bidwell, Sydney
Fowler, Gerry
Maclennan, Robert


Blackburn, P.
Gardner, Tony
McMillan, Tom (Glasgow, c.)


Booth, Albert
Gray, Dr. Hugh (Yarmouth)
McNamara, J. Kevin


Boston, Terence
Gregory, Arnold
Mahon, Peter (Preston, S.)


Boyden, James
Grey, Charles (Durham)
Mahon, Simon (Bootle)


Braddock, Mrs. E. M.
Griffiths, David (Rother Valley)
Manuel, Archie


Bray, Dr. Jeremy
Griffiths, Will (Exchange)
Mapp, Charles


Brooks, Edwin
Hamling, William
Marquand, David


Brown, Hugh D. (G'gow, Provan)
Hannan, William
Mayhew, Christopher


Brown, R. W. (Shoreditch &amp; F'bury)
Harper, Joseph
Mendelson, J. J.


Buchanan, Richard (G'gow, Sp'burn)
Haseldine, Norman
Millan, Bruce


Cant, R. B.
Hazell, Bert
Miller, Dr. M. S.


Carmichael, Neil
Heffer, Eric S.
Mitchell, R. C. (S'th'pton, Test)


Carter-Jones, Lewis
Henig, Stanley
Moonman, Eric


Coleman, Donald
Herbison, Rt. Hn. Margaret
Morgan, Elystan (Cardiganshire)


Concannon, J. O.
Hilton, W. S.
Morris, Alfred (Wythenshawe)


Cullen, Mrs. Alice
Hobden, Dennis (Brighton &amp; K'town)
Morris, Charles R. (Openshaw)


Dalyell, Tam
Hooley, Frank
Moyle, Roland


Davidson, Arthur (Accrington)
Horner, John
Neal, Harold


Davies, Dr. Ernest (Stretford)
Howarth, Robert (Bolton, E.)
Newens, Stan


Davies, G. Elfed (Rhondda, E.)
Howie, W.
Norwood, Christopher


Davies, Harold (Leek)
Hoy, James
O'Malley, Brian


Davies, Ifor (Gower)
Hughes, Roy (Newport)
Orme, Stanley


Dell, Edmund
Jackson Colin (B'h'se &amp; Spenb'gh)
Oswald, Thomas


Dempsey, James
Jeger, Mrs. Lena (H'b'n &amp; St. P'cras, S.)
Owen, Dr. David (Plymouth, S'tn)


Diamond, Rt. Hn. John
Jenkins, Rt. Hn. Roy (Stechford)
Owen, Will (Morpeth)


Dickens, James
Johnson, Carol (Lewisham, S.)
Page, Derek (King's Lynn)


Dobson, Ray
Jones, J. Idwal (Wrexham)
Parkyn, Brian (Bedford)


Doig, Peter
Jones, T. Alec (Rhondda, West)
Pavitt, Laurence


Driberg, Tom
Kelley, Richard
Penttand, Norman


Dunn, James A.
Kerr, Russell (Feltham)
Perry, George H. (Nottingham, S.)


Dunnett, Jack
Lawson, George
Price, Christopher (Perry Barr)


Edwards, William (Merioneth)
Lee, Rt. Hn. Frederick (Newton)
Price, William (Rugby)


Ellis, John
Lee, John (Reading)
Probert, Arthur




Reynolds, C. W.
Stater, Joseph
Wellbeloved, James


Roberto, Albert (Normanton)
Spriggs, Leslie
Weals, William (Walsall, N.)


Roberts, Goronwy (Caernarvon)
Stewart, Rt. Hn. Michael
Whitaker, Ben


Robinson, W. O. J. (Walth'stow, E.)
Swingler, Stephen
Whits, Mrs. Eirene


Rote, Paul
Taverne, Dick
Whillock, William


Row, Rt. Hn. William
Thornton, Ernest
Williams, Alan (Swansea, W.)


Rowland, Christopher (Meriden)
Tinn, James
Williams, Alan Lee (Hornchurch)


Rowlands, E. (Cardiff, N.)
Varley, Eric G.
Williams, Clifford (Abertillery)


Ryan, John
Wainwright, Edwin (Dearne Valley)
Woodburn Rt. Hn. A.


Sheldon, Robert
Walden, Brian (All Saints)
Woof, Robert


Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Walker, Harold (Doncaster)



Silkin, Rt. Hn. John (Deptford)
Wallace, George
TELLERS FOR THE AYES:


Silkin, Hn. S. C. (Dulwich)
Watkine, David (Consett)
Mr. Walter Harrison and


Silverman, Julius (Aston)
Weitzman, David
Mr. Fitch.




NOES


Alison, Michael (Barkston Ash)
Gower, Raymond
Munro-Lueas-Tooth, Sir Hugh


Astor, John
Grant, Anthony
Murton, Oscar


Awdry, Daniel
Grant-Ferris, R.
Nabarro, Sir Gerald


Baker, W. H. K.
Gresham Cooke, R.
Neave, Airey


Bennett, Dr. Reginald (Got. &amp; Fhm)
Griffiths, Eldon (Bury St. Edmunds)
Nicholis, Sir Harmar


Bitten, John
Gurden, Harold
Onslow, Cranley


Birch, Rt. Hn. Nigel
Hall-Davis, A. G. F.
Osborn, John (Hallam)


Black, Sir Cyril
Hamilton, Marquess of (Fermanagh)
Pearson, Sir Frank (Clitheroe)


Blaker, Peter
Harris, Frederic (Croydon, N. W.)
Percival, Ian


Body, Richard
Harrison, Col. Sir Harwood (Eye)
Pink, R. Bonner


Boyd-Carpenter, Rt. Hn. John
Hastings, Stephen
Pounder, Rafton


Boyle, Rt. Hn. Sir Edward
Hawkins, Paul
Pym, Francis


Brewis, John
Heald, Rt. Hn. Sir Lionel
Quennell, Miss J. M.


Brinton, Sir Tatton
Heseltine, Michael
Ronton, Rt. Hn. Sir David


Bromley-Davenport. Lt.-Col. Sir Walter
Higgins, Terence L.
Rossi, Hugh (Hornsey)


Brown, Sir Edward (Bath)
Hirst, Geoffrey
Boyle, Anthony


Buck, Antony (Coichester)
Hogg, Rt. Hn. Quintin
Russell, Sir Ronald


Burden, F. A.
Holland, Philip
Scott, Nicholas


Campbell, Gordon
Hordern, Peter
Sharples, Richard


Carlisle, Mark
Hunt, John
Shaw, Michael (Sc'b'gh &amp; Whitby)


Channon, H. P. G.
Jenkin, Patrick (Woodford)
Smith, John


Chichester-Clark, R.
Jopting, Michael
Stainton, Keith


Clark, Henry
King, Evelyn (Dorset, S.)
Stoddart-Scott, Col. Sir M. (Ripon)


Cooke, Robert
Kirk, Peter
Summers, Sir Spencer


Costain, A. P.
Lancaster, Col. C. G.
Taylor, Sir Charles (Eastbourne)


Crawley, Aidan
Langford-Holt, Sir John
Taylor, Frank (Moss Side)


Crosthwaite-Eyre, Sir Oliver
Legge-Bourke, Sir Harry
Temple, John M.


Dalkeith, Earl of
Longden, Gilbert
Thatcher, Mrs. Margaret


Dance, James
Loveys, W. H.
Turton, Rt. Hn. R. H.


Davidson, James (Aberdeenshire, W.)
Lubbock, Eric
Wainwright, Richard (Colne Valley)


d'Avigdor-Goldsmid, Sir Henry
MacArthur, Ian
Walker, Peter (Worcester)


Dean, Paul (Somerset, N.)
Mackenzie, Alasdair(Ross &amp; Crom'ty)
Walker-Smith, Rt. Hn. Sir Derek


Deedes, Rt. Hn. W. F. (Ashford)
Macleod, Rt. Hn. Iain
Weatherill, Bernard


Digny, Simon Wingfield
Maddan, Martin
Webster, David


Elliott, R. W. Wc'tle-upon-Tyne, N.)
Maginnis, John E.
Whilelaw, Rt. Hn. William


Emery, Peter
Marten, Neil
Wilson, Geoffrey (Truro)


Eyre, Reginald
Mawby, Ray
Winstanley, Dr. M. P.


Farr, John
Maydon, Lt.-Cmdr. S. L. C.
Wotrige-Gordon, Patrick


Fisher, Nigel
Mills, Peter (Torrington)
Woodnutt, Mark


Fletcher-Cooke, Charles
Mills, Stratton (Belfast, N.)
Worsloy, Marcus


Gibson-Watt, David
Miscampbell, Norman
Wright, Esmond


Gilmour, Sir John (Fife, E.)
Montgomery, Fergus



Glover, Sir Douglas
More, Jasper
TELLERS FOR THE NOES:


Glyn, Sir Richard
Morrison, Charles (Devizes)
Mr. David Mitchell and




Mr. Monro.

Mr. Iain Macleod: I beg to move,
That the Chairman do report Progress and ask leave to sit again.
We have reached the right time for this Motion, which, I hope, the Government will accept. We have obviously made good progress today—11 Clauses and four or five Schedules—and it would be a pity at this hour to embark on the Question "That the Clause stand part of the Bill", which is probably the next debate

to follow. I suggest that we now call it a day or an early morning.

Mr. Diamond: I entirely associate myself with everything that the right hon. Gentleman has said. It has indeed been a day of some progress and some interest, and I am sure that everybody has earned a rest.

Question put and agreed to.

Committee report Progress; to sit again this day.

POST OFFICE (DATA PROCESSING SERVICE) BILL

Motion made, and Question proposed,
That the Order [3rd May] That the Bill be committed to a Committee of the whole House, be read and discharged:
That the Bill be committed to a Standing Committee.—[Mr. Edward Short.]

12.9 a.m.

Sir Douglas Glover: I notice that the Leader of the House is not in his place. The House is entitled to some explanation as to why, when it has reached the conclusion that this Bill should be discussed in Committee of the whole House, the Resolution should be altered and the Bill sent upstairs.
I do not wish to detain the House, but we are entitled to some explanation of this change. Presumably, when the House took its original decision, this was considered to be an important matter. What has happened in the meantime to alter the Government's view? Is the Bill so controversial that the right hon. Gentleman wants to get it through under less glare of publicity? What deep fundamental reason is behind the change?

The Postmaster-General (Mr. Edward Short): I apologise on behalf of my right

hon. Friend the Leader of the House, who has a very important engagement and cannot be present here tonight. He has asked me to sit in for him.
I am afraid that the original decision to take the Bill on the Floor of the House is a casualty of the war in the Middle East. We have already had to give an extra day for debating the Middle East, and, indeed, we have lost two days since the Easter Recess. We accept that if the crisis develops it may be necessary to allocate more Parliamentary time for debate of the situation.
This Motion is a precautionary measure to clear the decks so that, if required, additional time can be given on the Floor of the House for discussion of the war or any related topic which arises. That is the only reason for the Motion. There is no ulterior motive.

Question put and agreed to.

ADJOURNMENT

Resolved, That this House do now adjourn.—[Mr. Walter Harrison.]

Adjourned accordingly at eleven minutes past Twelve o'clock.